<PAGE>
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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 March 31, 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
----------------
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)
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 May 14, 1999, 24,437,348 shares of Common Stock, Par Value $.01 Per
Share, were outstanding.
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<PAGE>
CENTER TRUST
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999 (unaudited)
and December 31, 1998.......................................... 3
Consolidated Statements of Operations (unaudited) for the three
months ended March 31, 1999 and 1998........................... 4
Consolidated Statements of Cash Flows (unaudited) for the three
months ended March 31, 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
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
------
Rental properties..................................... $1,064,324 $1,074,629
Accumulated depreciation and amortization............. (139,320) (141,785)
---------- ----------
Rental properties, net................................ 925,004 932,844
Cash and cash equivalents............................. 6,471 6,636
Tenant receivables, net............................... 10,879 13,543
Other receivables..................................... 6,805 7,984
Restricted cash and securities........................ 16,423 5,437
Deferred charges, net................................. 19,575 18,682
Other assets.......................................... 2,134 1,895
---------- ----------
Total............................................. $ 987,291 $ 987,021
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Secured Debt........................................ $ 492,629 $ 497,386
7 1/2% Convertible subordinated debentures.......... 138,595 138,599
7 1/4% Exchangeable subordinated debentures......... 30,000 30,000
Accrued dividends and distributions................. 10,583 10,931
Accrued interest.................................... 3,815 5,873
Accounts payable and other accrued expenses......... 8,775 6,718
Accrued construction costs.......................... 1,938 1,955
Tenant security and other deposits.................. 6,562 5,957
---------- ----------
Total liabilities................................. 692,897 697,419
---------- ----------
MINORITY INTERESTS:
Operating Partnership (4,938,240 and 4,978,240 units
issued as of March 31, 1999 and December 31, 1998,
respectively)...................................... 49,384 47,717
Other minorities.................................... 1,451 1,514
---------- ----------
Total minority interests.......................... 50,835 49,231
---------- ----------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE COMMON STOCK (590,034 shares outstanding,
redeemable on May 25, 1999).......................... 9,903 9,903
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock ($.01 par value, 100,000,000 shares
authorized; 23,847,314 24,756,693 shares issued and
outstanding at March 31, 1999 and December 31,
1998, respectively................................. 238 248
Additional paid-in capital.......................... 345,392 354,281
Accumulated distributions and deficit............... (111,974) (124,061)
---------- ----------
Total stockholders' equity........................ 233,656 230,468
---------- ----------
Total............................................. $ 987,291 $ 987,021
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
CENTER TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------
1999 1998
------- -------
<S> <C> <C>
REVENUES:
Minimum rents............................................. $26,225 $19,532
Recoveries from tenants................................... 8,133 6,173
Percentage rents.......................................... 618 239
Other income.............................................. 1,190 1,225
------- -------
Total revenues.......................................... 36,166 27,169
------- -------
EXPENSES:
Interest.................................................. 13,095 10,254
Depreciation and amortization............................. 6,026 5,389
Property Operating Costs:
Common Area.............................................. 5,527 4,077
Property taxes........................................... 3,607 2,772
Leasehold rentals........................................ 424 411
Marketing................................................ 141 75
Other operating.......................................... 1,338 1,190
General and administrative................................ 1,530 709
------- -------
Total expenses.......................................... 31,688 24,877
------- -------
INCOME FROM OPERATIONS BEFORE GAIN ON SALE OF ASSETS AND
MINORITY INTERESTS......................................... 4,478 2,292
Gain on sale of assets...................................... 20,575 --
MINORITY INTERESTS:
Operating Partnership..................................... (4,089) (443)
Other minorities.......................................... (72) (69)
------- -------
NET INCOME.................................................. $20,892 $ 1,780
======= =======
BASIC INCOME PER SHARE...................................... $ 0.83 $ 0.10
======= =======
DILUTED INCOME PER SHARE.................................... $ 0.70 $ 0.10
======= =======
WEIGHTED AVERAGE BASIC SHARES OUTSTANDING................... 25,243 17,646
======= =======
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING................. 34,610 17,646
======= =======
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
CENTER TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................. $ 20,892 $ 1,780
Adjustment to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of rental properties....... 6,026 5,389
Amortization of deferred financing costs................. 751 683
Gain on Sale of Assets................................... (20,575) --
Minority interests in operations......................... 4,161 512
Net changes in operating assets and liabilities.......... 1,891 (4,984)
-------- --------
Net cash provided by operating activities................ 13,146 3,380
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of properties................................ (18,484) (42,128)
Construction and development costs....................... (3,055) (8,027)
Net proceeds from sale of properties..................... 45,415 --
-------- --------
Net cash provided by (used by) investing activities...... 23,876 (50,155)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage financing................. (1,112) (740)
Borrowings on secured line of credit..................... 33,017 56,508
Repayment of secured line of credit...................... (36,450) (42,000)
Proceeds from sale of common stock....................... -- 40,473
Purchase of common stock................................. (9,953) --
Repurchase of OP Units................................... (75) --
Costs of obtaining financing............................. (638) (320)
(Increase) decrease in restricted cash and securities.... (10,986) 2,430
Dividends to shareholders................................ (9,138) (5,823)
Distributions to minority interests...................... (1,927) (1,700)
-------- --------
Net cash (used in) provided by financing activities.... (37,187) 48,828
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS....... (165) 2,053
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD.......... 6,636 3,613
-------- --------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD................ $ 6,471 $ 5,666
======== ========
NON-CASH TRANSACTIONS:
Fair value of debt assumed to acquire properties ........ $ -- $58,613
======== ========
Issuance of Operating Partnership Units to Acquire
Properties.............................................. $ -- $ 15,089
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
CENTER TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
CenterTrust Retail Properties, Inc., dba Center Trust (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 March 31, 1999 the Company owned 62 retail
shopping centers (the "Properties") comprising 10.2 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 Transactions
During the quarter, the Company sold two assets for approximately $47.1
million. On January 26, 1999 the Company sold the Sam's Club located in
Fountain Valley, California ("Sam's Club"), a 120,000 square foot facility. On
February 15, 1999, the Company sold The City Center, a 194,000 square foot
mature community shopping center located in San Francisco, California. These
transactions resulted in a combined gain of $20.6 million.
Sam's Club was one of six properties, which secured a $55.6 million
mortgage pool. Because of restrictions on prepayment, the Company was
obligated to purchase $11.0 million of U.S. Treasury Securities (the
"Securities") to secure and repay $8.0 million of the $55.6 mortgage pool.
Scheduled interest and principal payments will be made with proceeds from the
Securities. The average yield on the Securities is 4.9%. The securities mature
at various dates through April 1, 2010. The Company is prohibited from selling
or replacing any of the Securities. Proceeds from the sale of The City Center
and the balance of the proceeds from Sam's Club were used to reduce the
balance on the Company's secured credit facility.
On February 17, 1999, the Company acquired Randolph Plaza, an 180,000
square foot community shopping center located in Tucson, Arizona for
approximately $9.8 million. On March 12, 1999, the Company purchased a 109,000
square foot Target store that anchors its Southpointe Plaza Shopping Center in
Sacramento, California.
3. Redeemable Common Stock
In connection with the Separation Agreement entered into between the
Company and the Haagen Family, the Company 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).
Portions of the shares to be repurchased require that certain stock options be
exercised by the Haagen Family resulting in a net obligation to the Company of
$58.8 million. Under the terms of the Separation Agreement, the Haagen Family
may not sell such shares other than in certain open market transactions on the
New York Stock Exchange. Included in the Shares to be repurchased are 590,034
shares of Common Stock.
6
<PAGE>
CENTER TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. 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
three months ended March 31, 1999, the Company repurchased 958,000 shares for
an average price of $10.29 bringing the total number of shares acquired to
1,403,400 for an aggregate cost of $15,131,000.
On April 20, 1999 the Company paid a $0.36 dividend to shareholders of
record as of March 31, 1999.
5. Per Share Data
In accordance with SFAS No. 128 (Earnings Per Share), basic earnings per
share ("EPS") is based on the weighted average number of shares of common
stock outstanding during the period and diluted EPS 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 of basic EPS for the three-month periods ended March 31, 1999 and
1998 was 25,243,000 and 17,646,000, respectively. The weighted average number
of shares of common stock used in the computation of diluted EPS for the
three-month periods ended March 31, 1999 and 1998 was 34,610,000 and
17,646,000. 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
outstanding options issued under the Company's Amended and Restated 1993 Stock
Option and Incentive Plan and the Company's convertible and exchangeable
debentures.
6. Subsequent Event
Subsequent to March 31, 1999, the Company obtained a $52.0 million 10-year
non-recourse mortgage. The mortgage is secured by four properties and bears
interest at a fixed rate of 7.75%. Proceeds from the mortgage were used to
pay-off $34.5 million of existing fixed rate mortgages, net of a $655,000
prepayment penalty, which had a weighted average interest rate of 8.96%. $27.9
million of the mortgages paid-off had maturity dates in 1999. The balance of
the proceeds were used to pay-down the Company's secured 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 contained
elsewhere in this document.
The following discussion of Financial Condition and Results of Operations
contains certain forward-looking statements that are subject to risk and
uncertainty. Investors and potential investors in the Company's 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 the Company'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 who 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 the Company'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 (l) 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.
Results of Operations
Comparison of the three months ended March 31, 1999 to the three months ended
March 31, 1998.
Rental revenues increased by $9.0 million to $36.2 million for the three
months ended March 31, 1999 from $27.2 million for the three months ended
March 31, 1998. The acquisition of 20 community shopping centers subsequent to
January 1, 1998 resulted in an increase of $9.5 million in revenues.
Offsetting this increase was a reduction of $0.9 million related to the sale
of two assets subsequent to March 31, 1998. The balance of the increase
resulted from a 3% increase in revenues from properties owned prior to January
1, 1998.
Property operating costs increased by $2.5 million to $11.0 million for the
three months ended March 31, 1999 from $8.5 million for the three months ended
March 31, 1998. Substantially all of the increase is a result of increased
property taxes and operating costs as a result of the 20 properties acquired
during 1998 and 1999. Increased operating costs at the existing properties
accounted for $0.2 million of the increase.
Interest expense increased to $13.1 million for the three months ended
March 31, 1999 from $10.3 million for the three months ended March 31, 1998.
The increase resulted from additional borrowings on the Company's line of
credit and the assumption of $70.3 million in mortgage debt associated with
the acquisition of twenty community shopping centers in 1998 and 1999.
General and Administrative costs increased by $0.8 million from $0.7
million for the three months ended March 31, 1998 to $1.5 million for the
three months ended March 31, 1999. The increase was primarily the result of
the change in accounting for internal costs related to the acquisition of real
estate as mandated by the Financial Accounting Standards Board. In addition
the Company increased staffing in order to accommodate its Company's growth,
such increases included senior management as well as regional property
management personnel.
Net income increased by $19.1 million from $1.8 million for the three
months ended March 31, 1998 to $20.9 million for the three months ended March
31, 1999. In addition to the reasons stated above, included in net income was
a gain on sale of real estate assets of $20.6 million. This gain resulted from
the sale of the Sam's Club in Fountain Valley, California, a single tenant
facility and The City Center, in San Francisco, California.
8
<PAGE>
Selected Property Information
Net operating income (defined as revenues, less property operating costs)
for the Company's properties is as follows:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------
1999 1998
------- -------
<S> <C> <C>
Retail Properties (62 in 1999 and 54 in 1998):
Regional Malls............................................ $ 4,773 $ 4,443
Community Centers......................................... 18,648 12,183
Single Tenants............................................ 1,520 1,848
Other income................................................ 188 170
------- -------
Net Operating Income...................................... $25,129 $18,644
======= =======
</TABLE>
The following summarizes the percentage of leased GLA (excluding non-owned
GLA) as of:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Retail Properties (62 in 1999 and 63 in 1998):
Community Centers................................... 91.8% 91.9%
Regional Malls...................................... 89.1 90.9
Single Tenants...................................... 100.0 100.0
Aggregate Portfolio................................... 92.3 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 March 31,
----------------
1999 1998
------- -------
<S> <C> <C>
Funds From Operations
Net income................................................ $20,892 $ 1,780
Adjustments to reconcile net income to funds from
operations:
Depreciation and Amortization:
Buildings and improvements.............................. 4,282 3,953
Tenant improvements and allowances...................... 1,257 1,066
Leasing costs........................................... 454 329
Minority Interests........................................ 4,009 367
Gain on Sale of Assets.................................... (20,575) --
Other..................................................... 393 25
------- -------
Funds from Operations, basic.............................. 10,702 7,520
Debenture interest expense................................ 3,142 3,142
Amortization of debenture financing costs................. 325 325
------- -------
Funds from Operations, basic.............................. $14,169 $10,987
======= =======
</TABLE>
9
<PAGE>
Funds from operations, on a basic basis, increased to $10.7 million for the
three months ended March 31, 1999, as compared to $7.5 million for the same
period in 1998. On a diluted basis, assuming conversion of the debentures,
funds from operations increased to $14.2 million from $11.0 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
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.
As of March 31, 1999, the Company sold 13,406,434 shares of common stock to
an affiliate of Lazard Freres Real Estate Investors, LLC ("LFREI"), under the
terms of an agreement to purchase $235 million in common stock at $15 per
share, for aggregate proceeds of $201.1 million. The Company will sell the
remaining 2,260,232 shares to LFREI for proceeds of $33.9 million on or prior
to May 19, 1999.
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 provide continued funding for the Company's acquisitions, stock
repurchase program and redevelopment activities. The Credit Facility expires
in December 2000. As of March 31, 1999, the outstanding borrowings on the
Credit Facility were $197.5 million, with an additional $4.8 million having
been utilized to provide letters of credit.
To the extent that borrowings under the Credit Facility are less than the
outstanding commitment from LFREI, the interest rate on such portion will be
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.
Mortgage loans maturing of $15.8 million in 1999 and $8.1 million in 2001,
as well as significant amounts due from 2002 to 2015, may require
refinancing.Additionally, the Company'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. The Company believes,
based on the collateral available within the Properties, that it will be able
to effect such refinancings.
Subsequent to March 31, 1999, the Company obtained a $ 52.0 million 10-year
non-recourse mortgage. The mortgage is secured by four properties and bears
interest at a fixed rate of 7.75%. Proceeds from the mortgage were used to
pay-off $34.5 million of existing fixed rate mortgages, which had a weighted
average interest rate of 8.96%. The balance of the proceeds was used to pay-
down the balance on the Company's secured credit facility.
The Company anticipates continuing to execute its Stock Repurchase program,
acquisition and redevelopment strategy over the next 12 months. The Company
believes that such activities will be funded from the LFREI Equity Commitment,
the Company's Credit Facility, future debt refinancings and financings, and
the disposition of certain non-strategic assets. The Company also expects that
these proceeds will be used to fund the Haagen Obligation of $58.8 million.
During the three months ended March 31, 1999, the Company 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.
10
<PAGE>
Cash Flows
Net cash provided by operating activity increased by $9.7 million from $3.4
million for the three months ended March 31, 1998 to $13.1 million for the
same period of 1999. The increase resulted primarily from the acquisition of
19 shopping centers in 1998 and 2 acquisitions in 1999.
Net cash from investment activities was $23.9 million for the three months
ended March 31, 1999 as compared to net cash used by investing activities
of$50.2 million for the three months ended March 31, 1998. The change was a
result of the purchase of two properties in 1999 versus eight properties
during the first Quarter of 1998 and the sale of two assets in 1999. Financing
activities used cash of $37.2 million for the three months ended March 31,
1999 as compared to cash provided by financing activities for the three months
ended March 31, 1998 of $48.8 million. The principal cause of the change was
the sale of Sam's Club, Fountain Valley and City Center in San Francisco which
allowed the Company to reduce the balance outstanding on its credit facility.
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.
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 is in the process of identifying
11
<PAGE>
the areas and systems that use embedded microprocessors to determine whether
any modifications are necessary. The Company expects to make any 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 differ from those plans, as information not currently known to
the Company becomes available.
The Company is in the process of developing 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. It is anticipated that such plans will be complete in sufficient time
prior to December 31, 1999.
12
<PAGE>
PART II--OTHER INFORMATION
Item 1: Legal Proceedings None
Item 2: Changes in Securities
None
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
<TABLE>
<C> <S>
Exhibit 27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
Form 8-K on February 19, 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: May 14, 1999
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,471
<SECURITIES> 0
<RECEIVABLES> 10,879
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,064,324
<DEPRECIATION> 139,320
<TOTAL-ASSETS> 987,290
<CURRENT-LIABILITIES> 0
<BONDS> 661,224
0
0
<COMMON> 252
<OTHER-SE> 261,021
<TOTAL-LIABILITY-AND-EQUITY> 1,008,167
<SALES> 0
<TOTAL-REVENUES> 36,166
<CGS> 0
<TOTAL-COSTS> 11,037
<OTHER-EXPENSES> 11,717<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,095
<INCOME-PRETAX> 20,892
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,892
<EPS-PRIMARY> 0.83
<EPS-DILUTED> 0.70
<FN>
<F1>Includes depreciation and amortization of $6,026, $4,161 allocated to minority
interests and $1,530 in G&A costs.
</FN>
</TABLE>
