<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 September 30, 1999
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
----------------
Center Trust, 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)
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 November 10, 1999, there were 26,144,935 shares of Common Stock, Par
Value $.01 Per Share, outstanding.
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<PAGE>
CENTER TRUST, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1999 (unaudited)
and December 31, 1998........................................... 3
Consolidated Statements of Operations (unaudited) for the three
and nine months ended September 30, 1999 and 1998............... 4
Consolidated Statements of Cash Flows (unaudited) for the nine
months ended September 30, 1999 and 1998........................ 5
Notes to Consolidated Financial Statements (unaudited).......... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 8
PART II OTHER INFORMATION............................................... 13
SIGNATURES............................................................... 14
</TABLE>
2
<PAGE>
CENTER TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS:
Rental properties................................... $1,037,997 $1,074,629
Accumulated depreciation and amortization........... (141,156) (141,785)
---------- ----------
Rental properties, net.............................. 896,841 932,844
Cash and cash equivalents........................... 9,921 6,636
Tenant receivables, net............................. 11,573 13,543
Other receivables................................... 5,767 7,984
Restricted cash and securities...................... 15,567 5,437
Deferred charges, net............................... 20,281 18,682
Other assets........................................ 2,676 1,895
---------- ----------
TOTAL........................................... $ 962,626 $ 987,021
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Secured Debt...................................... $ 522,367 $ 497,386
7 1/2% Convertible subordinated debentures........ 128,548 138,599
7 1/4% Exchangeable subordinated debentures....... 30,000 30,000
Accrued dividends and distributions............... 10,064 10,931
Accrued interest.................................. 4,275 5,873
Accounts payable and other accrued expenses....... 10,862 6,718
Accrued construction costs........................ 2,131 1,955
Tenant security and other deposits................ 5,678 5,957
---------- ----------
Total liabilities............................... 713,925 697,419
---------- ----------
Minority Interests:
Operating Partnership (1,836,623 and 4,978,240
units issued as of September 30, 1999 and
December 31, 1998, respectively)................. 16,186 47,717
Other minority interests.......................... 1,359 1,514
---------- ----------
Total minority interests........................ 17,545 49,231
---------- ----------
Commitments and Contingencies:
Redeemable Common Stock (590,034 shares as of
December 31, 1998 Redeemed on May 25, 1999)........ -- 9,903
---------- ----------
Stockholders' Equity:
Common stock ($.01 par value, 100,000,000 shares
authorized; 26,144,935 and 24,756,693 shares
issued and outstanding at September 30, 1999 and
December 31, 1998, respectively.................. 261 248
Additional paid-in capital........................ 359,551 354,281
Accumulated distributions and deficit............. (128,656) (124,061)
---------- ----------
Total stockholders' equity...................... 231,156 230,468
---------- ----------
TOTAL........................................... $ 962,626 $ 987,021
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
CENTER TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
1999 1998 1999 1998
--------- --------- --------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Rental revenues.................... $ 26,870 $ 25,336 $ 79,710 $ 68,024
Expense reimbursements............. 8,065 7,493 24,054 20,283
Percentage rents................... 532 241 1,541 803
Other income....................... 1,234 1,118 3,755 3,611
--------- --------- --------- --------
Total revenues................... 36,701 34,188 109,060 92,721
--------- --------- --------- --------
Property operating costs:
Common area...................... 5,722 5,564 16,565 14,379
Property taxes................... 3,476 3,020 10,781 8,724
Leasehold rentals................ 438 412 1,285 1,237
Marketing........................ 265 149 610 307
Other operating.................. 1,167 1,315 3,516 3,900
Interest........................... 13,938 12,741 40,544 35,167
Depreciation and amortization...... 6,263 6,213 18,387 17,518
General and administrative......... 2,404 1,575 5,365 3,939
--------- --------- --------- --------
Total expenses................... 33,673 30,989 97,053 85,171
--------- --------- --------- --------
Income from Operations before Gain
on Sale of Assets and
Minority Interests................ 3,028 3,199 12,007 7,550
(Loss) Gain on Sale of Assets...... (214) 1,055 20,361 1,055
Minority interests--Operating
Partnership....................... (126) (793) (4,255) (1,657)
Minority interests--Other.......... (78) (69) (223) (206)
--------- --------- --------- --------
Net Income before Extraordinary
Loss.............................. 2,610 3,392 27,890 6,742
Extraordinary Loss--Early
Extinguishment of Debt............ (857) -- (4,905) --
--------- --------- --------- --------
Net income....................... $ 1,753 $ 3,392 $ 22,985 $ 6,742
========= ========= ========= ========
Basic and Diluted Earnings Per
Share:
Income before Extraordinary Loss... $ 0.10 $ 0.15 $ 1.09 $ 0.33
Extraordinary Loss--Early
Extinguishment of Debt............ (0.03) -- (0.19) --
--------- --------- --------- --------
Net Income......................... $ 0.07 $ 0.15 $ 0.90 $ 0.33
========= ========= ========= ========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
CENTER TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.............................................. $ 22,985 $ 6,742
Adjustment to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of rental properties.... 18,387 17,518
Amortization of deferred financing costs.............. 2,337 2,149
Gain on Sale of Assets................................ (20,361) (1,055)
Minority interests in operations...................... 4,478 1,863
Net changes in operating assets and liabilities....... 276 ( 610)
--------- ---------
Net cash provided by operating activities........... 28,102 26,607
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of properties............................. (18,959) (198,644)
Construction and development costs.................... (9,870) (18,341)
Proceeds from sale of rental property................. 65,044 5,357
--------- ---------
Net cash provided by (used by) investing
activities......................................... 36,215 (211,628)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal amortization on mortgage financing.......... (2,990) (2,709)
Principal payments on mortgage financing.............. (74,930) --
Proceeds from mortgages............................... 122,000 --
Purchase of Convertible Debentures.................... (9,561) --
Borrowings on secured line of credit.................. 126,213 191,426
Repayment of secured line of credit................... (143,657) (118,900)
Proceeds from sale of common stock.................... 33,903 141,024
Purchase of common stock.............................. (20,115) --
Repurchase of OP Units................................ (48,363) --
Costs of obtaining financing.......................... (1,476) (979)
(Increase) Decrease in restricted cash and
securities........................................... (10,130) 4,018
Dividends to shareholders............................. (27,316) (20,711)
Distributions to minority interests................... (4,610) (5,003)
--------- ---------
Net cash (used in) provided by financing
activities......................................... (61,032) 188,166
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS............... 3,285 3,145
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD....... 6,636 3,613
--------- ---------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD............. $ 9,921 $ 6,758
========= =========
NON-CASH TRANSACTIONS:
Fair value of debt assumed to acquire properties...... $ -- $ 95,294
========= =========
Issuance of Operating Partnership Units to Acquire
Properties........................................... $ -- $ 16,378
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
CENTER TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis Of Presentation
Center Trust, Inc. (the "Company") 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 September 30, 1999
the Company owned 59 retail shopping centers (the "Properties") comprising
11.4 million square feet of total shopping center gross leasable area ("GLA").
The accompanying financial statements and related notes of the Company 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 the Company's financial position, results of operations and
cash flows have been included. These financial statements should be read in
conjunction with the Company's Form 10-K for the year ended December 31, 1998.
Certain reclassifications have been made in the 1998 financial statements
to conform to the 1999 financial statement presentation.
2. Property Dispositions
During the three months ended September 30, 1999, the Company sold three of
its Properties. On August 2, 1999, the Company sold Empire Center, located in
Fontana, California, a 626,000 square foot community shopping center, of which
262,000 square feet were owned by the Company. On September 15, 1999 the
Company sold Sixth Avenue, located in Tacoma, Washington, a 139,000 square
foot community center. Finally, on September 16, 1999, a 102,000 square foot
single tenant facility in Tucson, Arizona. Gross proceeds from the sale of
these assets were $24.0 million. After a $3.0 million reduction on an 11.45%
mortgage, for which the Company incurred an extraordinary loss of $0.9 million
related to a prepayment penalty and the write-off of unamortized loan costs,
proceeds were used to reduce the outstanding balance on the Company's secured
credit facility.
3. Secured Debt
On August 2, 1999, the Company closed the third and final tranche of a
variable rate mortgage. The mortgage has a 3-year term and bears interest at
LIBOR plus 250 basis points. Proceeds of $11.5 million were used, in part, to
repay a $7.3 million mortgage. This mortgage had an interest rate of 10.25%
and matured in 1999. The remaining proceeds were used to reduce the
outstanding balance on the Company's secured credit facility.
During the second quarter of 1999, the Company closed on $110.5 million in
mortgage financing. On May 7, 1999, the Company obtained a 10 year, $52
million mortgage. The mortgage is secured by four properties and bears
interest at a fixed rate of 7.75%. Proceeds from the mortgage were used, in
part, to pay-off $34.5 million of existing fixed rate mortgages, which had a
weighted average interest rate of 8.96%. Two of the three mortgages repaid,
totaling $27.9 million, had maturities in 1999. On May 21, 1999 and June 1,
1999 the Company closed on the first two tranches of the variable rate
mortgage, described above, secured by four properties. Proceeds from the first
and second tranche totaled $58.5 million and were used, in part, to repay two
mortgages totaling $24.9 million, which matured in 2004 and had an average
interest rate of 9.24%. The balance of the proceeds were used to reduce the
outstanding balance on the Company's secured credit facility.
6
<PAGE>
CENTER TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Associated with the mortgage prepayments above, the company incurred
extraordinary losses of $4.5 million. After paying-off existing mortgages and
certain prepayment penalties, the above mortgages generated net proceeds of
$47.1 million, which were used to reduce the outstanding balance on the
Company's secured credit facility.
4. Subordinated Debentures
During the nine months ended September 30, 1999, the Company purchased
$10,047,000 of its Series A and B, 7 1/2% Convertible Subordinated Debentures
(the "Debentures"). The Debentures, which mature in January, 2001, were
purchased at a 5% discount to face value, resulting in an extraordinary gain
on early extinguishment of debt of $0.5 million.
5. Redeemable Common Stock
On May 25, 1999, the Company purchased 590,034 shares of Redeemable Common
Stock held by the Haagen Family. In connection with the Separation Agreement,
the Company had 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 then current market price (as determined in
accordance with the Separation Agreement). A portion of the shares repurchased
required that certain stock options be exercised by the Haagen Family,
resulting in a net obligation to the Company of $58.8 million.
6. Stockholder's Equity
In October 1998, the Board of Directors authorized the Company to
repurchase up to $25 million of its common stock through the open market or in
privately negotiated transactions over a period of twelve months. During the
nine months ended September 30, 1999, the Company repurchased 980,667 shares
at an average price of $10.30 bringing the aggregate number of shares acquired
to 1,417,367 with a total cost of $15,262,000.
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 basic and diluted weighted average number of shares of common
stock used in the computation for the three-month periods ended September 30,
1999 and 1998 was 26,144,845 and 23,138,817, respectively. The basic and
diluted weighted average number of shares of common stock used in the
computation for the nine-month period ended September 30, 1999 and 1998 was
25,539,348 and 20,143,739, respectively. Units held by limited partners in the
Operating Partnership may be exchanged for shares of common stock of the
Company 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 the Company's convertible and exchangeable
debentures.
8. Subsequent Event
Subsequent to September 30, 1999, the Company obtained three non-recourse
mortgages, generating total proceeds of $42 million. The mortgages, each
secured by a single property, have 10-year terms and bear interest at a fixed
interest rate of 8.3%. Proceeds were used to reduce the outstanding balance on
the Company's credit facility.
7
<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.
Results of Operations
Comparison of the nine months ended September 30, 1999 to the nine months
ended September 30, 1998.
Rental revenues increased by $16.4 million to $109.1 million for the nine
months ended September 30, 1999 from $92.7 million for the nine months ended
September 30, 1998. The acquisition of 1 community shopping center during 1999
and 19 community shopping centers during 1998 contributed an additional $17.3
million in revenues during the first nine months of 1999. Offsetting these
increases was a reduction of $3.9 million related to the sale of five assets
during the same period. The remaining increase in revenue was derived from the
Company's remaining properties.
Property operating costs increased by $4.2 million to $32.8 million for the
nine months ended September 30, 1999 from $28.6 million for the nine months
ended September 30, 1998. The increase is a result of increased property taxes
and operating costs resulting from the properties acquired during 1998 and
1999
Interest expense increased to $40.5 million for the nine months ended
September 30, 1999 from $35.2 million for the nine months ended September 30,
1998, an increase of $5.3 million. The increase was caused by additional
borrowings on the Company's line of credit and the assumption of $6.7 million
in mortgage debt associated with the acquisition of 6 community shopping
centers acquired during the first nine months of 1998.
General and Administrative costs increased by $1.5 million from $3.9
million for the nine months ended September 30, 1998 to $5.4 million for the
nine months ended September 30, 1999. During September 1999, the Company
initiated a restructuring of its corporate operations. As a result, the
company reduced its head count by approximately 20 positions, or 18%. Included
in general and administrative expense for the nine months ended September 30,
1999 is a $1.1 million non-recurring charge, principally related to severance
payments.
Net income increased by $16.3 million from $6.7 million for the nine months
ended September 30, 1998 to $23.0 million for the nine months ended September
30, 1999. In addition to the reasons stated above, included in net income was
a net gain on sale of real estate assets of $20.4 million. This gain resulted
from the sale of the two single tenant facilities in Fountain Valley,
California and Tucson, Arizona; The City Center, in San Francisco, California;
Empire Center, located in Fontana, California; and Sixth Avenue Plaza, Tacoma,
Washington. Offsetting the gain on sale were extraordinary losses resulting
from the early extinguishment of debt of $4.9 million.
Selected Property Financial Information
Net operating income (defined as revenues, less property operating costs)
for the Company's properties is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1999 1998
-------- --------
<S> <C> <C>
Retail Properties (59 in 1999 and 63 in 1998):
Regional Malls............................................. $ 13,128 $ 12,492
Community Centers.......................................... 58,454 46,132
Single Tenants............................................. 3,863 5,275
Other income................................................. 858 275
-------- --------
Net Operating Income....................................... $ 76,303 $ 64,174
======== ========
</TABLE>
8
<PAGE>
The following summarizes the percentage of leased GLA (excluding non-owned
GLA as of:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Retail Properties (59 in 1999 and 63 in 1998):
Community Centers............................. 94.4% 91.9%
Regional Malls................................ 91.2 90.9
Single Tenants................................ 100.0 100.0
Overall Portfolio............................... 94.5% 92.7%
</TABLE>
Funds from Operations
The Company 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 is
defined, as outlined in the March 1995 White Paper, 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. Additionally, the definition also permits FFO to be adjusted for
significant non-recurring items.
The Company computes FFO on both a basic and diluted basis. The diluted
basis assumes the conversion of the convertible and exchangeable debentures
into shares of common stock. The following table summarizes the Company's
computation of FFO and provides certain additional disclosures (dollars in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
1999 1998 1999 1998
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Funds from Operations
Net income........................ $ 1,753 $ 3,392 $ 22,985 $ 6,742
Adjustments to reconcile net
income to funds from operations:
Depreciation and Amortization:
Buildings and improvements...... 4,265 4,146 12,783 11,411
Tenant improvements and
allowances..................... 1,341 1,452 3,899 4,294
Leasing costs................... 619 604 1,603 1,721
Minority Interests................ 41 712 4,005 1,426
Extraordinary Loss--
Early Extinguishment of Debt... 857 -- 4,905 --
Loss (Gain) on Sale of Assets..... 214 (1,055) (20,361) (1,055)
Other............................. 1,498 423 2,134 862
--------- --------- -------- --------
Funds from Operations, basic...... 10,588 9,674 31,953 25,401
Debenture interest expense........ 2,956 3,143 9,221 9,427
Amortization of debenture
financing costs.................. 320 325 970 975
--------- --------- -------- --------
Funds from operations, diluted.... $ 13,864 $ 13,142 $ 42,144 $ 35,803
========= ========= ======== ========
</TABLE>
Funds from operations, on a basic basis, increased to $32.0 million for the
nine months ended September 30, 1999, as compared to $25.4 million for the
same period in 1998. On a diluted basis, assuming conversion of the
debentures, funds from operations increased to $42.1 million from $35.8
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.
9
<PAGE>
Liquidity Sources and Requirements
The Company intends to meet its short term cash requirements from cash
generated from operations. The company anticipates that revenues generated
from the Company's real estate will be sufficient to cover operating expenses,
debt service requirements and dividends to shareholders.
The Operating Partnership has a secured revolving line of credit with a
maximum borrowing limit of $250 million (the "Credit Facility"). The Credit
Facility will primarily provide continued funding for the Company's
acquisitions, stock and debenture repurchase programs and redevelopment
activities. The Credit Facility expires in December 2000. At September 30,
1999, outstanding borrowings on the Credit Facility were approximately $183.5
million, with an additional $4.8 million having been utilized to provide
letters of credit. The Credit Facility has certain covenants which the Company
is currently negotiating with the lender to modify and does not anticipate
that these covenants will require early repayment of the outstanding balance.
Borrowings under the Credit Facility bear interest at LIBOR plus 137.5
basis points.
As of September 30, 1999, the Company had sold 15,666,666 shares, to Lazard
Freres Real Estate Investors, LLC ("LFREI") for aggregate proceeds of $235
million. With the sale of $33.9 million of common stock to LFREI on May 19,
1999, LFREI has fully funded its obligation to purchase $235 million in common
stock of the Company at $15.00 per share.
Mortgage loans maturing of $8.1 million in 2001, as well as significant
amounts due in 2002 may require refinancing. Additionally, the Company's
secured line of credit is due in 2000 and the convertible debentures of $128.5
million and exchangeable debentures of $30.0 million are due in 2001 and 2003,
respectively. The Company believes, based on the collateral available within
its portfolio, that it will be able to meet such maturities with the proceeds
from either asset sales or debt refinancings.
During the nine months ended September 30, 1999, the Company obtained $122
million in mortgage financings. On May 7, 1999, the Company obtained a, 10
year, $52 million mortgage. The mortgage is secured by four properties and
bears interest at a fixed rate of 7.75%. Proceeds from the mortgage were used,
in part, to pay-off $34.5 million of existing fixed rate mortgages, which had
a weighted average interest rate of 8.96%. Two of the three mortgages repaid,
totaling $27.9 million, had maturities in 1999. On May 21, 1999 and June 1,
1999 the Company closed on the first two tranches of a variable rate mortgage
secured by four properties. The mortgage has a 3-year term and bears interest
at LIBOR plus 2.5%. Proceeds from the first and second tranche totaled $58.5
million and were used, in part, to repay two mortgages totaling $24.9 million,
which matured in 2004 and had a weighted average interest rate of 9.24%. On
August 2, 1999, the Company completed the third and final tranche of the
variable rate mortgage. Loan proceeds of $11.5 million from the third tranche
were used, in part, to repay a $7.3 million mortgage. This mortgage had an
interest rate of 10.25% and matured in 1999.
Subsequent to September 30, 1999, the Company obtained three non-recourse
mortgages, generating total proceeds of $42 million. The mortgages, each
secured by a single property, have 10-year terms and bear interest at a fixed
interest rate of 8.3%. Proceeds were used to reduce the outstanding balance on
the Company's credit facility.
Associated with the mortgage prepayments above, the company incurred
extraordinary losses of $4.5 million. After paying-off existing mortgages and
certain prepayment penalties, the above mortgages generated net proceeds of
$47.1 million, which were used to reduce the outstanding balance on the
Company's secured credit facility.
During the nine months ended September 30, 1999, the Company purchased
$10,047,000 of its Series A and B, 7 1/2% Convertible Subordinated Debentures
(the "Debentures"). The Debentures, which mature in January, 2001, where
purchased at a 5% discount to face value, resulting in an extraordinary gain
on early extinguishment of debt of $0.5 million.
The Company anticipates continuing to execute its stock and debenture
repurchase programs, as well as its acquisition and redevelopment strategy
over the next 12 months. The Company believes that such activities will be
funded from the Company's credit facility, future debt refinancings and
financings, and the disposition of certain non-strategic assets.
10
<PAGE>
During the nine months ended September 30, 1999, the Company has acquired
one unenclosed shopping center comprising 180,000 square feet of Company owned
GLA and the anchor tenant at its Southpointe Plaza Shopping Center in
Sacramento, California. These acquisitions were funded from borrowings under
the Credit Facility.
Cash Flows
Net cash provided by operating activity increased by $1.5 million to $28.1
million for the nine months ended September 30, 1999 from $26.6 million for
the nine months ended September 30, 1998. The principal reason for the
increase was the additional cash flow generated by the 1998 acquisitions. Cash
provided by investing activity was $36.2 million for the nine months ended
September 30, 1999, compared to cash used by investing activity of $211.6
million for the same period of 1998. The significant change was a result of
the sale of two single tenant facilities and three community shopping centers
during 1999, coupled with the fact that in the same period of 1998 the Company
acquired 19 assets as compared to one asset in 1999. Cash used by financing
activities was $61.0 million for the nine months ended September 30, 1999
compared to cash provided of $188.2 million for the nine months ended
September 30, 1998. The principal cause of the change in financing activity is
the use of funds to repurchase the Haagen Family interests in the Company as
well as other common stock and convertible debenture repurchases. In addition,
the Company sold $56.6 million less in common stock to LFREI in 1999 than it
sold in 1998.
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 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 from inflation.
Year 2000 Compliance
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process information containing a 2-
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. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send tenant invoices,
provide building services or engage in similar normal business activities. In
addition, there is a possibility that the Company may be unable to provide an
adequate operating environment for some of its tenants due to the failure of
building mechanical or security systems. The Company could be subject to
litigation for failure to provide an adequate operating environment for its
tenants as a result of such Year 2000 related system disruptions. More
immediately, the tenants could cease paying rent, which could impact the
Company's liquidity. There is also a possibility that if any of the Company's
major tenants do not become Year 2000 compliant on schedule, such tenant's
operations and financial condition could be adversely affected, which may
impact the tenant's ability to meet its rent obligations.
The Company has identified three areas of concern regarding Year 2000
Compliance; (i) internal information technology systems including the
Company's network hardware and software; (ii) computer and other operational
systems at its properties; and (iii) systems of significant third party
vendors and tenants.
The Company has evaluated its internal information technology systems and
has concluded that its most significant systems are currently Year 2000
compliant. The Company will continue to evaluate the readiness of its other
less significant systems in order to identify and correct potential Year 2000
issues.
11
<PAGE>
The Company is also in the process of evaluating computer and other
operational systems at its properties that may have embedded microprocessors
with potential Year 2000 issues. The potential Year 2000 issues at the
properties principally relate to automated utility systems such as heating,
ventilation and air conditioning systems and security and safety devices such
as lighting systems and alarms. The Company has identified the areas and
systems that use embedded microprocessors to determine whether any
modifications are necessary. The Company expects to make all necessary
modifications by the end of the third quarter of 1999.
The Company places a high degree of reliance on computer systems of third
parties such as vendors and tenants. The Company has completed a survey of all
third parties with whom it does significant business to determine their Year
2000 Compliance readiness and the extent to which the Company is vulnerable to
any third party Year 2000 issues. The Company has received statements of
compliance from its primary third party vendors and tenants which state that
their systems will be in compliance prior to December 31, 1999. However, there
can be no guarantee that the systems of other companies on which the Company's
systems rely will be timely converted, or that a failure to convert by another
company, or a conversion that is incompatible with the Company's systems,
would not have a material adverse effect on the Company. The Company believes
it has viable alternatives for each of its significant vendors.
The total cost to the Company 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 the
Company 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 come from those plans, as information not currently known to the
Company becomes available.
The Company has developed a series of contingency plans for its internal
information technology systems, its properties and its significant third party
vendors in the event that the Company experiences Year 2000 issues.
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 securities are
cautioned that a number of factors could adversely affect the Company'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 the Company's properties; (e) increases in certain
operating costs at the Company'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 the Company (h) increases in interest rates, (i) ability to
dispose of properties; (j) environmental issues; (k) governmental compliance
issues, and (1) 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.
12
<PAGE>
PART II--OTHER INFORMATION
Item 1: Legal Proceedings
None
Item 2: Changes in Securities
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 27--Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K on August 4, 1999 under Item 5 filing--supplemental data.
13
<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.
CENTER TRUST RETAIL 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
Vice President and Controller
(Principal Accounting Officer)
Dated: November 15, 1999
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 9,921
<SECURITIES> 0
<RECEIVABLES> 11,573
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,037,997
<DEPRECIATION> 141,156
<TOTAL-ASSETS> 962,626
<CURRENT-LIABILITIES> 0
<BONDS> 680,915
0
0
<COMMON> 261
<OTHER-SE> 238,440
<TOTAL-LIABILITY-AND-EQUITY> 962,626
<SALES> 0
<TOTAL-REVENUES> 109,060
<CGS> 0
<TOTAL-COSTS> 32,757
<OTHER-EXPENSES> 7,869<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,544
<INCOME-PRETAX> 27,890
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (4,905)
<CHANGES> 0
<NET-INCOME> 22,985
<EPS-BASIC> 0.90
<EPS-DILUTED> 0.90
<FN>
<F1>Includes depreciation and amortization of $18,387, $4,478 allocated to minority
interests, $5,365 in G&A costs and $20,361 gain on sale of assets.
</FN>
</TABLE>
