-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, If2FmGVO3XMQZfHOMETHCBya/8bssfdwP1VgKBeyb57azyPVcDyIOfiukgAH7DXW ATFWA8SMxXtgroRjn0dHPg== 0000905134-98-000020.txt : 19981116 0000905134-98-000020.hdr.sgml : 19981116 ACCESSION NUMBER: 0000905134-98-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CROWN AMERICAN REALTY TRUST CENTRAL INDEX KEY: 0000905134 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 251713733 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12216 FILM NUMBER: 98747036 BUSINESS ADDRESS: STREET 1: PASQUERILLA PLAZA CITY: JOHNSTOWN STATE: PA ZIP: 15907 BUSINESS PHONE: 8145364441 MAIL ADDRESS: STREET 1: N/A 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 Commission file number: 1-12216 CROWN AMERICAN REALTY TRUST (Exact name of registrant as specified in its charter) Maryland (State or other jurisdiction of incorporation or organization) 25-1713733 (IRS Employer Identification No.) Pasquerilla Plaza, Johnstown, Pennsylvania 15901 (Address of principal executive offices) (814) 536-4441 (Registrant's telephone number) Securities registered pursuant to Section 12(b) of the Act: Common Shares of Beneficial Interest, par value $.01 per share 11.00% Senior Preferred Shares, par value $.01 per share ($50.00 Liquidation Preference) (Title of Class) As of October 15, 1998, 26,207,144 Common Shares of Beneficial Interest and 2,500,000 11.00% Senior Preferred Shares of the registrant were issued and outstanding. New York Stock Exchange (Name of Exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for at least the past 90 days. Yes X No ____ Crown American Realty Trust Form 10-Q For the Quarterly Period ended September 30, 1998 INDEX Part I - Financial Information Item 1: Financial Statements Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997 Consolidated Statements of Operations for the three and nine months ended September 30, 1998 and 1997 Consolidated Statement of Shareholders' Equity for the nine months ended September 30, 1998 Consolidated Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 Notes to Consolidated Financial Statements Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Part II - Other Information Item 1: Legal Proceedings Item 2: Changes in Securities Item 3: Defaults Upon Senior Securities Item 4: Submission of Matters to a Vote of Security Holders Item 5: Other Information Item 6: Exhibits and Reports on Form 8-K Signatures
CROWN AMERICAN REALTY TRUST Consolidated Balance Sheets September 30, December 31, 1998 1997 (Unaudited) (in thousands, except share and per share data) Assets Income-producing properties: Land $ 145,773 $ 132,055 Buildings and improvements 926,102 852,674 Deferred leasing and other charges 42,065 39,912 Net 1,113,940 1,024,641 Accumulated depreciation and amortization (337,776) (315,125) Net 776,164 709,516 Other assets: Investment in joint venture 5,914 5,808 Cash and cash equivalents, non-restricted 5,006 9,472 Restricted cash and escrow deposits 22,699 14,237 Tenant and other receivables 13,617 16,986 Deferred charges and other assets 33,487 29,930 Net $ 856,887 $ 785,949 Liabilities and Shareholders' Equity Liabilities: Debt on income-producing properties $ 658,604 $ 541,713 Accounts payable and other liabilities 31,028 29,132 Net 689,632 570,845 Minority interest in Operating Partnership 13,376 25,334 Commitments and contingencies Shareholders' equity: Non-redeemable senior preferred shares, 11% cumulative, $.01 par value, 2,500,000 shares issued and outstanding 25 25 Common shares, par value $.01 per share, 120,000,000 shares authorized, 27,741,542 and 27,727,212 shares issued at September 30, 1998 and December 31, 1997, respectively 277 277 Additional paid-in capital 313,635 308,571 Accumulated deficit (145,406) (106,881) Net 168,531 201,992 Less common shares held in treasury at cost, 1,534,398 and 1,251,898 shares at September 30, 1998 and December 31, 1997, respectively (14,652) (12,222) Net 153,879 189,770 Net $ 856,887 $ 785,949 The accompanying notes are an integral part of these statements.
CROWN AMERICAN REALTY TRUST Consolidated Statements of Operations (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1998 1997 1998 1997 (in thousands, except per share data) Rental operations: Revenues: Minimum rent $ 23,688 $ 20,025 $ 68,669 $ 59,845 Percentage rent 1,333 1,290 4,389 3,898 Property operating cost 8,362 7,047 24,382 21,484 recoveries Temporary and promotional leasing 1,715 1,613 5,110 4,875 Net utility income 633 601 2,224 2,014 Miscellaneous income 221 165 749 484 Net 35,952 30,741 105,523 92,600 Property operating costs: Recoverable operating costs 10,969 9,681 32,437 28,536 Property administrative costs 548 502 1,728 1,526 Other operating costs 539 457 1,646 1,381 Depreciation and amortization 11,038 9,396 30,835 28,530 Net 23,094 20,036 66,646 59,973 Net 12,858 10,705 38,877 32,627 Other expenses: General and administrative 1,098 1,003 3,457 3,052 Interest 11,780 9,644 32,941 32,464 Net 12,878 10,647 36,398 35,516 Net (20) 58 2,479 (2,889) Gain on sale of outparcel land 399 934 968 Income (loss) before extraordinary item,minority interest, and cumulative effect of a change in accounting method (20) 457 3,413 (1,921) Extraordinary loss on early extinguishment of debt (22,512) (631) (22,512) (1,363) Cumulative effect on prior years (to December 31, 1997) of a change in accounting method (1,703) Income (loss) before minority (22,532) (174 (20,802) (3,284) interest Minority interest in loss of 7,052 862 8,463 1,655 Operating Partnership Net income (loss) (15,480) 688 (12,339) (1,629) Dividends on preferred shares (3,438) (3,208) (10,313) (3,208) Net (loss) applicable to common $ (18,918) $ (2,520) $ (22,652) $ (4,837) shares Per common share data: Basic EPS: Income (loss) before $ (0.10) $ (0.08) $ (0.19) $ (0.14) extraordinary item Extraordinary item (0.62) (0.02) (0.62) (0.04) Cumulative effect on prior years of a change in accounting method (0.05) Net income (loss) $ (0.72) $ (0.10) $ (0.86) $ (0.18) Diluted EPS: Income (loss) before $ (0.10) $ (0.08) $ (0.19) $ (0.14) extraordinary item Extraordinary item (0.62) (0.02) (0.62) (0.04) Cumulative effect on prior years of a change in accounting method (0.05) Net income (loss) $ (0.72) $ (0.10) $ (0.86) $ (0.18) Basic & Diluted: Weighted average shares 26,418 27,092 26,456 27,467 outstanding The accompanying notes are an integral part of these statements.
CROWN AMERICAN REALTY TRUST Consolidated Statement of Shareholders' Equity (Unaudited) Common Shares Senior Issued and Preferred Common Outstanding Shares Shares (in thousands) Balance, December 31, 1997 26,475 $ 25 $ 277 Net proceeds from exercise of 14 stock options and dividend reinvestment plan Transfer in of limited partner's interest in the Operating Partnership Capital contributions from Crown Investments Trust: Cash flow support Purchase of common shares held (282) in treasury Net income (loss) Cumulative effect of a change in accounting method Dividends paid and accrued Balance, September 30, 1998 26,207 $ 25 $ 277 Common Additional Shares Paid in Accumulated Held in Capital Deficit Treasury Total (in thousands) Balance, December 31, 1997 $ 308,571 $ (106,881) $ (12,222) $ 189,770 Net proceeds from exercise of stock options and dividend reinvestment plan 132 132 Transfer in of limited partner's interest in the Operating Partnership 2,806 2,806 Capital contributions from Crown Investments Trust: Cash flow support 2,126 2,126 Purchase of common shares held in treasury (2,430) (2,430) Net income (11,099) (11,099) Cumulative effect of a change in accounting method (1,240) (1,240) Dividends paid and accrued (26,186) (26,186) Balance, September 30, 1998 $ 313,635 $ (145,406) $ (14,652) $ 153,879 The accompanying notes are an integral part of these statements.
CROWN AMERICAN REALTY TRUST Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 1998 1997 (in thousands) Cash flows from operating activities: Net income (loss) $ (12,339) $ (1,629) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Minority interest in Operating Partnership (8,463) (1,655) Gain on sale of office building Equity earnings in joint venture (382) (383) Depreciation and amortization 36,233 34,200 Extraordinary loss on early extinguishment of debt 22,512 1,363 Cumulative effect of a change in accounting method 1,703 Net changes in: Tenant and other receivables 1,675 3,081 Deferred charges and other assets (9,319) (9,388) Accounts payable and other liabilities 4,530 (5,653) Net cash provided by operating activities 36,150 19,936 Cash flows from investing activities: Investment in income properties (34,626) (27,082) Acquisitions of operating properties (64,972) Proceeds from sale of Middletown Mall 8,148 Distributions from joint venture 150 Net cash (used in) investing activities (91,450) (26,932) Cash flows from financing activities: Net proceeds from issuance of senior preferred 118,723 shares Net proceeds from exercise of stock options and dividend reinvestment plan 132 921 Purchase of common shares held in treasury (2,430) (11,237) Proceeds from issuance of debt, net of issuance 551,535 81,282 cost Debt repayments (469,176) (120,832) Dividends and distributions paid on common shares and partnership units (21,830) (22,096) Dividends paid on senior preferred shares (10,313) (2,483) Cash flow support payments 2,916 Net cash provided by financing activities 50,834 44,278 Net increase (decrease) in cash and cash (4,466) 37,282 equivalents Cash and cash equivalents, beginning of period 9,472 6,746 Cash and cash equivalents, end of period $ 5,006 $ 44,028 Supplemental Cash Flow Information: Interest paid (net of capitalized amounts) $ 30,547 $ 30,965 Interest capitalized $ 1,812 $ 1,982 Non-cash financing activities: Cash flow support credited to minority interest and paid in capital that was prefunded in 1995. $ $ 2,742 Preferred dividends accrued, but unpaid as of $ $ 725 period end Issuance of partnership units related to Middletown Mall and Greater Lewistown acquisitions $ 4,479 $ Assumption of debt related to Greater Lewistown and $ 14,718 $ Crossroads acquisitions The accompanying notes are an integral part of these statements.
CROWN AMERICAN REALTY TRUST Notes to Consolidated Financial Statements (Unaudited) NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION Organization Crown American Realty Trust (the "Company") was formed on May 14, 1993 as a Maryland real estate investment trust (a "REIT") to acquire and operate substantially all of the enclosed shopping mall properties and two office buildings (the "Properties") owned by Crown American Associates ("Crown Associates"), formerly Crown American Corporation. Crown Associates is a wholly owned subsidiary of Crown Holding Company ("Crown Holding"). Crown Associates, which was founded in 1950, was engaged principally in the development, acquisition, ownership and management of enclosed shopping malls and, to a lesser extent, strip shopping centers, hotels and office buildings. The Company raised approximately $405 million in equity through an initial public offering of approximately 25.5 million shares, which occurred on August 17, 1993, and used the proceeds to purchase an initial 78% general partnership interest in Crown American Properties, L.P. (the "Operating Partnership"), a partnership which was formed just prior to consummation of the offering to own and operate the Properties. The proceeds were used by the Operating Partnership to retire debt related to the Properties. Simultaneously with the public offering, Crown Associates and an affiliate transferred the Properties and the management operations into either the Company, the Operating Partnership, or Crown American Financing Partnership (the "Financing Partnership"), a partnership which is 99.5% owned by the Operating Partnership and 0.5% owned by the Company. The limited partnership interest in the Operating Partnership and the 1.6 million shares in the Company received for two malls transferred in 1993 are currently held by Crown Investments Trust ("Crown Investments"), by Crown American Investment Company (a subsidiary of Crown Investments), and by members of the Pasquerilla family. Subsequently, five additional enclosed malls have been acquired by the Company: two in 1995, one in 1997, and two in 1998. In addition a strip shopping center, which had been managed by the Company, was acquired by the Company in May 1998. Simultaneously with the above transactions, the Financing Partnership borrowed through Kidder approximately $300 million of mortgage debt (the "Kidder Mortgage Loans") secured by its 15 enclosed shopping malls (see Note 4). The proceeds from $300 million of mortgage debt together with the proceeds of the equity offering were used to retire existing debt contributed with the Properties (see Note 4). As described in Note 4, in August 1998 the Kidder Mortgage Loans were refinanced in their entirety. As further described in Note 3, on July 3, 1997 the Company completed an offering of 2,500,000 11.00% non-convertible senior preferred shares at an initial offering price of $50.00 per share. As of September 30, 1998, the Properties consist of: (1) 26 enclosed shopping malls (together with adjoining outparcels and undeveloped land) located in Pennsylvania, New Jersey, Maryland, Tennessee, North Carolina, West Virginia, Virginia and Georgia, (2) a 50% general partnership interest in Palmer Park Mall Venture, which owns Palmer Park Mall located in Easton, Pennsylvania, (3) Pasquerilla Plaza, an office building in Johnstown, Pennsylvania, which serves as the headquarters of the Company and is partially leased to other parties, and (4) a parcel of land and building improvements located in Pennsylvania (under ground lease with a purchase option) sub-leased to a department store chain. As the owner of real estate, the Company is subject to risks arising in connection with the underlying real estate, including defaults under or non- renewal of tenant leases, tenant bankruptcies, competition, inability to rent unleased space, failure to generate sufficient income to meet operating expenses, as well as debt service, capital expenditures and tenant improvements, environmental matters, financing availability and changes in real estate and zoning laws. The success of the Company also depends upon certain key personnel, the Company's ability to maintain its qualification as a REIT, compliance with the terms and conditions of the Mortgage Loans and other debt instruments, and trends in the national and local economy, including income tax laws, governmental regulations and legislation and population trends. Basis of Presentation The accompanying consolidated interim financial statements of the Company include all accounts of the Company, its wholly-owned subsidiaries, and its majority-owned subsidiary, the Operating Partnership, which in turn includes the Financing Partnership, and other special purpose partnerships or limited liabilities entities formed to hold acquired properties or for financing purposes (see Notes 4 and 6). The Company is the sole general partner in the Operating Partnership, and at September 30, 1998, the Company held 100% of the preferred partnership interests (see Note 3) and 72.47% of the common partnership interests. All significant intercompany amounts have been eliminated. Certain prior year balances have been reclassified to conform to the current year presentation. In the opinion of management, the accompanying unaudited consolidated interim financial statements include all adjustments of a normal recurring nature necessary for a fair presentation of the financial position and results of operations of the Company. These consolidated interim financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 1997, which are included in its Annual Report on Form 10-K. The results of operations for interim periods are not necessarily indicative of results to be expected for the year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2 - CHANGE IN ACCOUNTING METHOD On May 21, 1998 the Emerging Issues Task Force ("EITF") discussed Issue 98-9 "Accounting for Contingent Rent" and reached a consensus that lessors should defer the accounting recognition of contingent rent, such as percentage rent, until the specific tenant sales breakpoint target is achieved. The Company's previous accounting method, which was fully acceptable under Generally Accepted Accounting Principles ("GAAP"), recognized percentage rent on a pro-rata basis when a tenant's achievement of its sales breakpoint was considered probable. This EITF consensus can be implemented on a prospective basis, or retroactively as a change in accounting method. During the third quarter of 1998, the Company implemented the EITF consensus as a change in accounting method and accordingly recorded as of January 1, 1998 a $1.7 million cumulative effect adjustment representing the change on prior years' percentage rent income of the new method of accounting. The impact on percentage rent income of the new method for the nine months ended September 30, 1998 was a reduction of percentage rents of about $80,000 from what would have been reported under the Company's previous method of accounting. This current year impact was recorded in the third quarter; the impact on the previously reported first and second quarters was immaterial. NOTE 3 - PREFERRED SHARE OFFERING On July 3, 1997, the Company completed an offering of 2,500,000 11.00% non- convertible senior preferred shares. The initial offering price was $50.00 per share and the preferred shares are listed on the New York Stock Exchange. The preferred shares are non-callable by the Company for a ten-year period (until July 31, 2007). On or after July 31, 2007, the Company, at its option, may redeem the preferred shares for cash at the redemption price per share set forth below: Redemption Price Redemption Period Per Share July 31, 2007 through July 30, 2009 $52.50 July 31, 2009 through July 30, 2010 $51.50 On or after July 31, 2010 $50.00 The net proceeds to the Company were $118.7 million after underwriter's commission and other offering expenses. The net proceeds were contributed by the Company to the Operating Partnership in exchange for 2,500,000 preferred Partnership Units. The terms of the new class of preferred Partnership Units generally parallel those of the Company's preferred shares as to distributions and redemption rights. In turn, the Operating Partnership used the proceeds to repay $58.3 million of debt and to acquire Valley Mall for $32 million. In connection with the preferred share offering, the Company's Board of Trustees also authorized the Company to make open market purchases of the Company's common shares. As of December 31, 1997 and September 30, 1998, the Company had repurchased 1,251,898 and 1,534,398 common shares, respectively, for an aggregate purchase price of $12.2 million and $14.7 million, respectively; these shares are currently held as treasury shares. Under the current Board resolution, the Company is authorized, but not obligated, to repurchase up to an additional 965,602 common shares. In connection with such repurchases, the Operating Partnership redeemed from the Company an equivalent number of common Partnership Units for the equivalent repurchase cost, thus maintaining a 1.0 to 1.0 relationship between the number of the Company's outstanding common shares of beneficial interest and the number of common Partnership Units in the Operating Partnership that are owned by the Company. As stipulated in the Prospectus Supplement, additional dividends shall be paid quarterly to the holders of the preferred shares if the Company's total debt (as defined) exceeds the product of 6.5 times EDITDA (as defined) (the "Leverage Ratio") without the consent of the holders of at least 50% of the preferred shares outstanding at the time. The Leverage Ratio computed as of September 30, 1998, is 5.7 to 1 and accordingly no additional dividends were payable. If required to be paid, additional dividends will be for an amount per preferred share equal to 0.25% of the Preferred Liquidation Preference Amount (as defined) on an annualized basis for the first quarter with respect to which an additional dividend is due. For each quarter thereafter that the Company continues to exceed the permitted Leverage Ratio, the additional dividend will increase by an amount per preferred share equal to an additional 0.25% of the Preferred Liquidation Preference Amount on an annualized basis. However, the maximum total dividend on the preferred shares, including any additional dividends, will not at any time exceed 13.00% of the Preferred Liquidation Preference Amount per annum. NOTE 4 - DEBT ON INCOME-PRODUCING PROPERTIES Debt on income-producing properties consisted of the following (in thousands): September 30, 1998 December 31, 1997 Mortgage loans $ 465,000 $ 280,637 Permanent loans 128,852 229,417 Construction loans 4,608 1,659 Secured term loans and lines of credit 60,144 30,000 $ 658,604 $ 541,713 Mortgage Loans Concurrently with the offering of shares of the Company in 1993, the Financing Partnership borrowed an aggregate $300 million in mortgage debt through Kidder Peabody Mortgage Capital Corporation (collectively, the "Kidder Mortgage Loans"). In connection with obtaining a construction loan for rebuilding and expanding Logan Valley Mall, in December 1995 the Company repaid $19.4 million of the Kidder Mortgage Loans in order to release the Logan Valley Mall from the Kidder Mortgage Loans and Financing Partnership. No prepayment penalty was incurred. On August 28, 1998, the Company closed a $465 million 10-year mortgage with GE Capital Real Estate ("GECRE"). The gross proceeds from the new loan (the "GECRE Mortgage Loan") were used to refinance the $280.6 million Kidder Mortgage Loans, the $110.0 million interim mortgage loan (see below), and the $30.0 million secured term loan. The remaining proceeds were used largely to establish escrows to fund the remaining expansion and redevelopment costs of Patrick Henry Mall and Nittany Mall, and to fund closing costs, initial loan reserves and prepayment penalties with respect to $200.0 million of the Kidder Mortgage Loans and the $30.0 million secured term loan that were pre-paid prior to their maturity dates. The prepayment penalties for the Kidder Mortgage Loans and the $30 million term loan were approximately $16.6 million. In addition, approximately $5.9 million of unamortized deferred financing costs related to the Kidder Mortgage Loans and the $110 million interim mortgage loan were written off. Both of these items were accounted for as an extraordinary loss on early extinguishment of debt. The GECRE Mortgage Loan has a fixed stated interest rate of 7.43% and is secured by cross-collateralized mortgages on 15 of the malls. In connection with the GECRE Mortgage Loan, in November 1997, the Company made a $6.0 million interest-bearing good-faith deposit with GECRE, and in July and August 1998, the Company made $12.2 million in non-interest bearing rate lock deposits with GECRE. These deposits were refunded at closing. Financing Transactions with GE Capital Real Estate In November 1997 the Company closed a $110 million interim mortgage loan and a $150 million secured credit facility with GECRE. The $110 million mortgage loan was placed through a new subsidiary, Crown American W L Associates, L.P., and was secured by Logan Valley and Wyoming Valley malls and bore interest at LIBOR plus 1.60%. The interim mortgage loan proceeds were primarily used to repay in full the existing $51.4 million construction loan on Logan Valley Mall and the existing $50.0 million mortgage loan on Wyoming Valley Mall. These two loans bore interest at LIBOR plus 2.375% and 1.75%, respectively. The interim mortgage loan was repaid as part of the refinancing in August 1998, as noted above. The $150 million secured credit facility consists of a $100 million acquisition line of credit and a $50 million working capital line of credit. The acquisition line is restricted solely for new property acquisitions and will be secured by mortgages on any properties acquired under the facility. The $50 million working capital line is secured by mortgages on four existing mall properties. As of September 30, 1998, $56.6 million was outstanding under these lines. Both lines have a 0.125% per annum commitment fee based on the unused amounts of the line, payable monthly; amounts borrowed will bear interest at LIBOR plus 2.35% and 1.95%, respectively, including servicing fee, with no required principal amortization. Both lines have a minimum initial term ending April 15, 1999 and can be extended to November 17, 2001 under renewal provisions so long as certain conditions are satisfied. Permanent Loans At September 30, 1998, permanent loans consisted of eight loans secured by seven properties with various maturities from October 1998 through June 2008. Included in permanent loans are (1) a $2.9 million interest free Urban Development Action Grant loan with the City of Johnstown, Pennsylvania, secured by an office building and due October 2006, and (2) a 4.5% Industrial Development Bond secured with a $1.3 million letter of credit. This letter of credit expires on April 30, 1999. Crown Holding has guaranteed one loan with a balance of $11.0 million as of September 30, 1998. Construction Loans In June 1997 the Company refinanced one construction loan with a new five-year permanent loan with a bank lender, together with a $6.0 million eighteen month construction loan facility that will convert to a three and one-half year permanent loan in 1999. This new construction loan relates to a theatre and other expansion construction at one of the Company's malls. The permanent loan bears fixed interest at 8.12% and the construction loan bears interest at LIBOR plus 2.00%. Secured Term Loans and Lines of Credit At September 30, 1998, the Company had $155.6 million in available revolving lines of credit, which includes the $150.0 million credit facility with GECRE described above. The total amounts outstanding under the lines were $60.1 million and $0.0 million at September 30, 1998 and December 31, 1997, respectively. Of the total lines available, $100 million is restricted for real estate acquisitions as may be approved by the lender in amounts up to 75% of the value of the acquired properties. Any properties so acquired will be mortgaged to secure the borrowings under this line. The remaining $55.6 million in credit lines consists of (i) a $50.0 million line secured by cross collateralized mortgages on four of the Company's mall properties (of which $28.6 million is outstanding at September 30, 1998), and (ii) a $5.6 million line with a bank secured by a mortgage on the Company's headquarters office building and which is renewable annually on April 30 (of which $3.5 million is outstanding at September 30, 1998). Amounts may be borrowed under the $55.6 million credit lines for general corporate purposes. Covenants and Restrictions Various of the above loans and lines of credit contain certain financial covenants and other restrictions, including limitations on the ratios, as defined, of total Company debt to EBITDA, EBITDA to fixed charges, and floating rate debt to total debt. The Company was in compliance with all such loan covenants as of and during the period ended September 30, 1998. Twenty of the Company's malls are mortgaged under the GECRE Mortgage Loan and the GECRE lines of credit. All of these malls are owned by special purpose subsidiaries of the Company. The sole business purpose of these subsidiaries, as an ongoing covenant under the related loan agreements, is the ownership and operation of the properties. The mortgaged malls and related assets owned by these subsidiary entities are restricted under the loan agreements for the payment of the related mortgage loans and are not available to pay other debts of the consolidated Company. However, so long as the loans are not under an event of default, as defined in the loan agreements, the cash flows from these properties, after debt service and reserve payments are made, are available for the general use of the consolidated Company. Interest Rates The Mortgage Loans and eight of the permanent loans (aggregate principal outstanding of $593.8 million at September 30, 1998) have fixed interest rates ranging from 0% to 9.625%. The weighted average interest rate on this fixed- rate debt at September 30, 1998 and 1997 was 7.65% and 7.66%, respectively. The weighted average interest rate during the three months ended September 30, 1998 and 1997 was 7.56% and 7.67%, respectively. All of the remaining loans (aggregate principal outstanding of $64.8 million at September 30, 1998) have variable rated debt based on spreads ranging from 1.95% to 2.35% above 30 day LIBOR. The weighted average interest rate on the variable rated debt at September 30, 1998, and 1997 was 7.60%, and 7.77%, respectively. The weighted average interest rate during the three months ended September 30, 1998 and 1997 was 7.58% and 7.80%, respectively. Debt Maturities As of September 30, 1998, the scheduled principal payments on all debt, including extensions available at the Company's option provided the debt is not in default at the extension dates, are as follows (in thousands): Period/Year Ending December 31, 1998 (three months) $ 594 1999 (year) 9,684 2000 (year) 5,200 2001 (year) 66,992 2002 (year) 39,048 Thereafter 537,086 Net $ 658,604 NOTE 5 - NEW ACCOUNTING PRONOUNCEMENTS In the first quarter of 1998, the Company adopted Statement of Financial Accounting Standards ("FAS") No. 130, "Reporting Comprehensive Income", which requires companies to report all changes in equity during a period, except those resulting from investment by owners and distribution to owners, in a financial statement for the period in which they are recognized. FAS No.130 has no impact on the Company's financial statements, as the Company's comprehensive income is equal to its net income at September 30, 1998. The Company will adopt FAS No. 131, "Disclosures About Segments of an Enterprise and Related Information" in the fourth quarter of 1998. This new standard is not expected to have a material effect on the Company's consolidated financial statements. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities. The Statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. Statement 133 is effective for fiscal years beginning after June 15, 1999. The impact of FAS No. 133 on the Company's results of operations at September 30, 1998 is immaterial. NOTE 6 - MALL ACQUISITIONS AND DISPOSITIONS On November 17, 1997 the Company, through a new subsidiary, Crown American Acquisitions I, L.P., acquired Valley Mall located in Hagerstown, Maryland for $31.7 million in cash, plus $0.4 million in transaction costs. The purchase was funded entirely from the proceeds of the Preferred Share Offering (see Note 3). Valley Mall is an enclosed regional mall consisting of approximately 616,000 square feet of gross leasable area ("GLA"), of which 123,400 square feet is owned by the current department store occupant. In addition, the purchase included 48,762 square feet of outparcel GLA and 30.8 acres of additional adjacent undeveloped land. In May 1998 the Company acquired, in a single transaction, two regional shopping malls: Jacksonville Mall in Jacksonville, North Carolina, and Crossroads Mall in Beckley, West Virginia. The two malls include gross leasable area of 384,000 and 456,000 square feet, respectively. Sears, JCPenney and Belk Stores anchor both malls. The total purchase price was approximately $61 million, which includes 10 acres of vacant land available for future development. The purchase was funded from existing credit lines and also from assumption of debt related to one of the properties. In addition, in May 1998 the Company acquired a 171,695 square foot shopping center located in Lewistown, Pennsylvania, for $4.5 million from Crown American Enterprises (a related party). The Company has managed this property since its inception. The major tenants include a Weis Markets and a small JCPenney unit. The purchase was funded through assumption of an existing mortgage of approximately $3.7 million and the remainder from the issuance of approximately 80,000 Operating Partnership units. With respect to Middletown Mall, a property acquired by the Company on February 1, 1995 from Crown Associates, additional contingent consideration, in the form of 437,888 common Partnership Units, was paid to Crown Investments Trust effective as of January 1, 1998, as consideration for the contribution of Middletown Mall to the Operating Partnership. The 437,888 units represent approximately 1.2% of the total common Partnership Units outstanding prior to the issuance of the new units. In July 1998 the Company sold Middletown Mall, together with approximately 60 acres of undeveloped outparcels and vacant land, to an unrelated third party. The aggregate purchase price was $12.2 million. The Company received $8.5 million in cash, net of closing costs, and received a $3.5 million one-year 9.5% mortgage from the purchaser, secured by a first mortgage on all the undeveloped land and outparcels and by a second mortgage on the mall. Gain on the sale of approximately $1.3 million has been deferred until all conditions for profit recognition under FASB 66 are satisfied. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain of the following comments contain forward looking statements that involve risk and uncertainties. Factors that could cause actual results to differ materially include: overall economic conditions, local economic conditions in the market areas surrounding each property, consumer buying trends, expansion and development plans of retailers and other current and potential tenants, the impact of competition, weather patterns and related impact on consumer spending, changing interest rates and financing conditions, and other risk factors listed from time to time in the Company's SEC reports, including this report on Form 10-Q for the quarter ended September 30, 1998. Selected Financial Data The table on the following page sets forth selected financial data for the Company for the three and nine months ended September 30, 1998 and 1997. Management's discussion and analysis of financial condition and results of operations should be read in conjunction with this table and the interim consolidated financial statements on pages 3 to 12. Performance Measurement Management believes that there are several important factors that contribute to the ability of the Company to increase rent and improve profitability of its enclosed shopping malls and other income properties, including aggregate anchor tenant and mall shop tenant sales volume, mall shop retail tenant sales per square foot and occupancy levels. Each of these factors has a significant effect on Funds from Operations and EBITDA. Funds from Operations (FFO) is a recognized industry performance measure for real estate investment trusts (REIT's) and as defined by the National Association of Real Estate Investment Trusts (NAREIT) generally represents net income or loss (computed in accordance with generally accepted accounting principles) before minority interest, real estate depreciation and amortization (as defined) and extraordinary and unusual non-recurring items, and additionally includes earned cash flow support (see Note 8 to the financial statements included in the Company's 1997 Form 10-K). Funds from Operations is used in the real estate industry as a measure of operating performance because reductions for real estate depreciation and amortization charges are not meaningful in evaluating the operating results of real estate, which have historically been appreciating assets. Gain on sales of outparcel land have been included in this supplemental measure of performance. Gain on sales of properties and anchor store locations, adjustments to carrying values of assets to be disposed of, and extraordinary items are excluded from FFO because such transactions are uncommon and not a part of ongoing operations. EBITDA is defined as revenues and gain on sale of outparcel land, less operating costs, including general and administrative expenses, before interest, and all depreciation and amortization; EBITDA also excludes gain on sales of properties and anchor store locations, adjustments to carrying values of assets to be disposed of, and extraordinary items because such items are uncommon and not a part of ongoing operations. Management believes EBITDA, as defined, provides the clearest indicator of operating performance for the following reasons: (i) it is industry practice to evaluate the performance of real estate properties based on net operating income (or NOI), which is generally equivalent to EBITDA; and (ii) both NOI and EBITDA are unaffected by the debt and equity structure of the property owner. Funds from Operations and EBITDA (i) do not represent cash flow from operations as defined by generally accepted accounting principles, (ii) are not necessarily indicative of cash available to fund all cash flow needs and (iii) should not be considered as an alternative to net income for purposes of evaluating the Company's operating performance. The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the Selected Financial Data and the accompanying consolidated financial statements and notes thereto.
Three Months Ended Nine Months Ended September 30, September 30, 1998 1997 1998 1997 (in thousands) Selected Financial Data: EBITDA (1 & 3) $ 23,875 $ 20,579 $ 70,339 $ 62,371 Funds from Operations (FFO) 2 & 3): Net Income (loss) $ (15,480) $ 688 $ (12,339) $ (1,629) Adjustments: Minority interest in Operating (7,052) (862) (8,463) (1,655) Partnership Depreciation and amortization - 11,380 9,704 31,803 29,519 real estate Operating covenant amortization 658 658 1,973 1,973 Cash flow support 1,000 1,066 2,926 2,742 Cumulative effect of a change in 1,703 accounting method Extraordinary loss on early 22,512 631 22,512 1,363 extinguishment of debt Funds from Operations, before 13,018 11,885 40,115 32,313 allocations to minority interests and preferred shares Less: Amount allocable to preferred 3,438 3,208 10,313 3,208 shares Amount allocable to minority 2,622 2,246 8,122 7,444 interest Funds from Operations applicable $ 6,958 $ 6,431 $ 21,680 $ 21,661 to common shares Weighted average common shares 26,418 27,092 26,456 27,467 outstanding (000) Cash Flows: Net cash provided by operating $ 16,330 $ 7,679 $ 36,150 $ 19,936 activities Net cash used in investing $ (21,236) $ (9,248) $ (91,450) $ (26,932) activities Net cash provided by financing $ 5,533 $ 42,873 $ 50,834 $ 44,278 activities (1) EBITDA represents revenues and gain on sale of outparcel land, less operating costs, including general and administrative expenses, before interest, and all depreciation and amortization;EBITDA also excludes gain on sales of properties and anchor store locations, adjustments to carrying values of assets to be disposed of, and extraordinary items because such items are uncommon not a part of ongoing operations. (2) Funds from Operations represents net income before minority interest and before depreciation and amortization plus earned cash flow support and adjustment for certain unusual items. (3) EBITDA and Funds from Operations (i) do not represent cash flow from operations as defined by generally accepted accounting principles, (ii) are not necessarily indicative of cash available to fund all cash flow needs and (iii) should not be considered as an alternative to net income for purposes of evaluating the Company's operating performance.
Comparison of Three and Nine Months Ended September 30, 1998 to the corresponding periods in 1997 - - Revenues For the first nine months of 1998, revenues totaled $105.5 million, an increase of 14 percent, compared to $92.6 million for the same period of 1997. Of the total revenue increase of $12.9 million, $8.0 million came from the four recently-acquired properties (Valley, Crossroads, and Jacksonville Malls and Greater Lewistown Plaza) and $4.9 million was attributed to existing properties, primarily from higher mall shop base and percentage rent and recovery income. Total revenues for the third quarter of 1998 were $36.0 million, up $5.3 million, or 17 percent, from $30.7 million in the same period of 1997. The four recently acquired properties (noted above) accounted for $3.9 million of the total increase, with $1.7 million arising from the existing properties, offset by $0.3 million lower revenues due to the sale of Middletown Mall in July 1998. - - Property Operating Costs: Total recoverable and non-recoverable mall operating costs for the first nine months of 1998 were $35.8 million, or $4.4 million higher than the corresponding period in 1997. This increase primarily consisted of $2.2 million of operating costs associated with the recently acquired properties and $0.7 million of increased real estate tax expense from existing properties. Depreciation and amortization expense increased by $2.3 million in the first nine months of 1998 compared to 1997, primarily due to the addition of the four newly acquired properties. Recoverable and non-recoverable mall operating costs for the third quarter of 1998 were $12.0 million compared to $10.6 million for the third quarter of 1997, an increase of $1.4 million. $1.1 million of this increase was due to the four recently acquired properties and $0.1 million was due to increased real estate taxes. - - General, Administrative and Interest Expenses: For the first nine months of 1998, general and administrative expenses totaled $3.5 million, or $0.4 million higher than the same period in 1997. This increase was primarily due to higher net leasing costs. Interest expense increased by $0.5 million in the first nine months of 1998 compared to 1997 primarily as a result of higher borrowing levels. General and administrative costs for the third quarter of 1998 totaled $1.1 million, an increase of $0.1 million over the second quarter of 1997. Interest expense for the third quarter of 1998 was $11.8 million, approximately $2.1 million higher than the corresponding period of 1997 due to higher debt levels outstanding. - - Gain on Property Sales and Disposals: The gain on the sale of outparcel land was $0.9 million for the first nine months of 1998, or even with the first nine months of 1997. For the third quarter of 1998, there were no land sales compared with $0.4 million in the third quarter of 1997. - - Net Income (loss): For the first nine months of 1998, the Company reported a net loss of $12.3 million compared to a net loss of $1.6 million for the first nine months of 1997. 1998's results include a loss on the early extinguishment of debt related to the GECRE financing of $22.5 million (see Note 4) and a $1.7 million cumulative effect write-off due to a change in accounting method (see Note 2). The 1997 net loss includes a loss on the early extinguishment of debt in the amount of $1.4 million. After deducting preferred dividends, there was a net loss applicable to common shares for the first nine months of 1998 of $22.7 million versus a net loss of $4.8 million for the first nine months of 1997. For the third quarter of 1998, the Company's net loss was $15.5 million compared to a net income in the third quarter of 1997 of $0.7 million. The third quarter of 1998 was impacted by the loss on early extinguishment of debt mentioned in the preceding paragraph. After deducting preferred dividends, there was a net loss applicable to common shareholders of $18.9 million in the third quarter of 1998 compared to a net loss of $2.5 million in the third quarter of 1997. - - Funds from Operations: For the first nine months of 1998, Funds from Operations ("FFO") before allocations to minority interest and to preferred dividends was $40.1 million compared to $32.3 million in the first nine months of 1997. FFO allocable to common shares (after minority interest and preferred dividends) was $21.7 million or even with the first nine months of 1997. The increase in FFO before allocations to minority interest and preferred dividends during the first nine months was mainly due to the following: FFO contributed from core mall operations was up $8.9 million, or 13.7 percent; the four recently acquired properties accounted for $5.7 million of this increase. These increases were offset by higher general and administrative expenses of $0.6 million, and by higher interest expense of $0.5 million. Preferred dividends were higher in 1998 by $7.1 million. For the quarter ended September 30, 1998, FFO before allocations to minority interest and to preferred dividends was $13.0 million, up from $11.9 million in the third quarter of 1997. FFO allocable to common shares was $7.0 million compared with $6.4 million for the third quarter of 1997. The increase in FFO before allocations to minority interest and to preferred dividends was due primarily to $1.3 million in higher mall shop and anchor base and percentage rents from the existing mall portfolio arising from increased occupancy and higher rental rates and $2.7 million in operating income from properties acquired since the third quarter of 1997. The increases were partially offset by $2.1 million in higher net interest expense mainly from higher average outstanding debt, $0.4 million from lower gain on land sales, and $0.2 million in higher preferred dividends. EBITDA For the nine months ended September 30, 1998, EBITDA was $70.3 million compared to $62.4 million for the same period in 1997, an increase of 13%. For the third quarter of 1998, EBITDA was $23.9 million compared to $20.6 million in 1997, an increase of 16%. EBITDA was largely impacted by the same factors as FFO above, except for interest costs and preferred stock dividends, which are not included in EBITDA. Liquidity and Capital Resources The Company believes that its cash generated from property operations and funds obtained from property financings will provide the necessary funds on a short- term and long-term basis for its operating expenses, interest expense on outstanding indebtedness and recurring capital expenditures and tenant allowances, and dividends to shareholders in amounts that would be necessary to satisfy the REIT requirements under the Internal Revenue Code. The Company intends to pay regular quarterly dividends to its shareholders. However, the Company's ability to pay dividends is affected by several factors, including cash flow from operations and capital expenditures and its ability to refinance its maturing debt as described below. Dividends by the Company will be at the discretion of the Board of Trustees and will depend on the cash available to the Company, its financial condition, investment needs and opportunities, capital and other requirements, and such other factors as the Trustees may consider. Sources of capital for non-recurring capital expenditures, such as major building renovations and expansions, as well as for scheduled principal payments, including balloon payments on the outstanding indebtedness, are expected to be obtained from additional Company or property financings and refinancings, sale of non-strategic assets, additional common or preferred equity raised in the public or private markets, and from retained internally generated cash flows, or from combinations thereof. As further described in Note 3 to the interim consolidated financial statements included herein, on July 3, 1997 the Company completed an offering of 11.00% senior preferred shares for an aggregate of $118.7 million after underwriter's commission and other offering expenses. As of September 30, 1998 the scheduled principal payments on all debt are as follows: $0.6 million for the three months ending December 31, 1998, and $9.7 million; $5.2 million; $67.0 million; and $39.0 million in the years ending December 31, 1999 through 2002, respectively, and $537.1 million thereafter. The Company expects to refinance or extend the majority of the maturities over the next five years through additional Company financings and mortgage loans on those properties having the maturing loans. The Company's ability to refinance or extend these loans on or before their due dates depends on the level of income generated by the properties, prevailing interest rates, the ability to access capital in the current market environment, credit market trends, and other factors that may be in affect at the time of such refinancings or extensions and there is no assurance that such refinancings or extensions will be executed. The ratios of the Company's EBITDA to interest paid on total indebtedness (exclusive of capitalized interest and interest income) for the years ended December 31, 1997, 1996, and 1995 were 2.04 to 1, 2.08 to 1, and 2.13 to 1, respectively. Year 2000 Management of the Company has made a preliminary and partial assessment of the so-called "Year 2000 problem" which relates to the ability of electronic equipment, computer hardware and software to properly recognize date sensitive information on or after January 1, 2000. Systems that do not properly recognize such information could generate erroneous data or cause a system to fail. The Company's assessment and corrective action efforts to date have focused primarily on internal equipment and software used by the Company. Based on this preliminary assessment, the Company believes that the cost to replace certain electronic and computer equipment and to reprogram certain software will not be material to the Company's results of operations. Beginning in 1994, the Company has made significant investments in upgraded computer hardware and third-party software operating and financial systems; management believes such new systems are Year 2000 capable based on communications with the hardware and software vendors and on limited testing. Management also believes that the potential impact and disruption of Year 2000 on equipment and software, to the extent not replaced or repaired by 2000, should not result in direct material adverse effects on the Company's ability to operate. Contributing to this preliminary assessment is the relatively passive nature of the Company's business of leasing space to retailers. However, the Company may be impacted in a number of direct and indirect ways if its suppliers and customers (tenants and the ultimate consumers), or if the general United States or world economies, are disrupted from the impact of Year 2000. Such effects could include, for example, temporary loss of utilities and telecommunications services which could prevent the shopping malls or tenants from maintaining normal sales hours, disruption of financial services such as processing of checks or credit card transactions, adverse effects on the manufacture and delivery of goods to tenants to be sold in the Company's mall properties (many such goods are produced outside the United States), and the inability of tenants' systems to process sales and control inventories. It is possible that these effects could reduce tenant sales and thus reduce percentage rents received by the Company. It is also possible that some tenants may be unable to remain in business and thus cease paying rents. Some commentators on Year 2000 have suggested that Year 2000 issues could cause, or contribute to, an economic recession which could affect the overall levels of tenant sales, future leasing activity, interest rates, and other general economic factors that could adversely impact the Company. While management of the Company is unable to estimate the magnitude of all these effects, they could have a material adverse effect on the future results of operations and financial condition of the Company. Management is continuing to complete its efforts to identify non-complaint equipment and systems, and to correct and/or replace such systems. Management is also beginning to develop contingency plans for both its headquarters and mall properties should these efforts not result in 100% compliance by January 1, 2000. These contingency plans will also address certain potential external effects on the Company, including possible loss of utilities. No assurance can be given that these contingency plans will be sufficient to mitigate all Year 2000 effects that could impact the Company. Part II - Other Information Item 1: Legal Proceedings The Company from time to time is involved in litigation incidental to its business. Except as described below, neither the Company, the Operating Partnership nor the Financing Partnership are currently involved in any material litigation and, to the best of the Company's knowledge, there is no material litigation currently threatened against the Company, the Operating Partnership, the Financing Partnership or the Properties, other than routine litigation arising in the ordinary course of business, most of which is expected to be covered by liability insurance or established reserves. Shareholder litigation On August 10, 1995, August 17, 1995, and September 8, 1995 complaints were filed by various individuals on behalf of themselves and also purportedly on behalf of other similarly situated persons against the Company and certain of its executive officers in United States District Court for the Western District of Pennsylvania to recover unspecified damages under the federal securities laws resulting from a decline in the market price for the Company's common shares of beneficial interest which are listed and traded on the New York Stock Exchange. The decline in the Company's share price followed the announcement on August 8, 1995 of various operational and capital resource initiatives by the Company, including the reduction of the Company's quarterly dividend to increase its levels of retained internal cash flow and the planned sale of certain assets that at the time did not fit the Company's growth strategy. The complaints in these three cases were consolidated by the Court and a consolidated amended complaint was filed on July 30, 1996. The consolidated amended complaint asserts a class period extending from March 1, 1995 to August 8, 1995, inclusive. A fourth Complaint was filed the week of December 15, 1995 by an individual on behalf of himself and also purportedly on behalf of other similarly situated persons against the Company and certain of its current and former executive officers in the United States District Court for the Eastern District of Pennsylvania (the Warden action). This action was subsequently transferred to the Western District of Pennsylvania. While this Complaint is substantially similar to the previous Complaints, it alleged a class period extending from August 17, 1993 (the IPO Date) to August 8, 1995. The Company filed a motion seeking to dismiss the consolidated action and negotiated a stay of the Warden action pending resolution of the motion to dismiss the consolidated actions. On September 15, 1997 the Court issued an opinion dismissing the consolidated amended complaint. In its ruling, the Court dismissed certain allegations with prejudice and others with an opportunity to amend. On October 10, 1997 the Plaintiffs filed a second amended complaint in the consolidated action. On December 2, 1997 the court entered an order consolidating the cases for pretrial purposes. On December 16, 1997 the Plaintiff in the Warden action filed a second amended complaint, which changed the end of the putative class period to February 28, 1995. On January 16, 1998 the Company filed motions seeking dismissal of both the consolidated action and the Warden action. On October 15, 1998 the Court in the warden action granted the Company's motion to dismiss and permitted the plaintiffs to file a third amended complaint on or before November 18, 1998. The Company anticipates the filing of a motion to dismiss any third amended complaint in the warden action. The consolidated legal action and the Warden action are in a very preliminary stage. However, the Company believes, based on the advice of legal counsel, that it and the named officers have substantial defenses to the Plaintiffs' claims, and the Company intends to vigorously defend the actions. The Company's current and former officers that are named in this litigation are covered under a liability insurance policy paid for by the Company. The Company's officers also have indemnification agreements with the Company. While the final resolution of this litigation cannot be presently determined, management does not believe that it will have a material adverse effect on the Company's results of operations or financial condition. On November 2, 1998, the Court granted in part and denied in part the Company's motion to dismiss the second amended complaint in the consolidated action. In its ruling, the Court dismissed the Company as a defendant and dismissed all of the plaintiffs' claims with prejudice, except for a narrow set of allegations relating to projections of the 1995 dividend at a March, 1995 REIT conference and in the 1994 annual report. As a result of the Court's ruling, the plaintiffs in the consolidated action must file a third amended complaint on or before November 30, 1998. Tenant litigation In July 1997 The Bon-Ton Department Stores, Inc. filed suit in a Pennsylvania state court against Crown American Financing Partnership and The May Department Stores seeking to enjoin the development of a Kaufmann's Department Store at Nittany Mall. Bon-Ton claimed that the proposed Kaufmann's store would violate a restrictive covenant in Bon-Ton's lease with Crown. Crown and May disputed Bon-Ton's position and filed a counterclaim seeking a declaratory judgment that the proposed transaction did not violate the restrictive covenant. The parties stipulated to a trial of all issues (except the availability of damages to Bon- Ton should it establish liability but not the entitlement to injunctive relief). After this trial, the Court ruled in favor of Crown and May, denying Bon-Ton's request for injunctive relief and granting Crown and May's motion for declaratory judgment. Bon-Ton has appealed to the Pennsylvania Superior Court. The appeal is pending and is scheduled for argument on December 8, 1998. While the final resolution of this litigation cannot be presently determined, management does not believe that it will have a material adverse effect on the Company's results of operations or financial condition. In December 1996 the Company was advised by Proffitt's, a tenant at the Company's Patrick Henry Mall in Newport News, Virginia, that it was selling its stores in the Tidewater region of Virginia to Dillard's, Inc. Pursuant to the Lease between the Company and Proffitt's, the Company had the right to terminate its Lease with Proffitt's in the event of an assignment to a third party. The Company exercised its right of termination. In conjunction with its termination of the Lease, the Company filed a declaratory judgment action in the state court of Virginia seeking a judicial affirmation of the lease termination. On December 29, 1997 the state court granted summary judgment in favor of the Company, ruling that the termination of the Lease by the Company was proper. In August 1997 Dillard's, Inc. and Dillard's Virginia, Inc. filed suit against the Company and May Department Stores, alleging that the Company and May conspired and agreed in restraint of trade in violation of the antitrust laws of the United States and Commonwealth of Virginia to preclude Dillard's from entering the Patrick Henry Mall. In January 1998 this lawsuit was settled by the parties. The settlement had no material adverse effect on the Company's results of operations or financial condition. Item 2: Changes in Securities None Item 3: Defaults Upon Senior Securities None Item 4: Submission of Matters to a Vote of Security Holders None Item 5: Other Information On October 29, 1998, the Company issued its regular quarterly earnings release and its Third Quarter 1998 Supplemental Financial and Operational Information Package for analysts and investors. Copies of these documents are hereby filed as Exhibits to the Form 10-Q. Exhibit 99 (a) - Press release dated October 29, 1998 Exhibit 99 (b) - Third Quarter 1998 Supplemental Financial and Operational Information Package Item 6: Exhibits and Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 12, 1998 CROWN AMERICAN REALTY TRUST /s/ Terry L. Stevens Terry L. Stevens Senior Vice President and Chief Financial Officer (Authorized Officer of the Registrant and Principal Financial Officer) EXHIBIT 99(a) NEWS FROM: C R O W N A M E R I C A N R E A L T Y T R U S T CONTACT: Media: Christine Menna 814-536-9520 Investors: Frank Pasquerilla 814-535-9347 Mark Pasquerilla 814-535-9364 Internet: http://www.crownam.com IMMEDIATE RELEASE: Thursday, October 29, 1998 CROWN AMERICAN REALTY TRUST REPORTS THIRD QUARTER FFO PER SHARE UP 8.3% COMPARED TO 1997 THIRD QUARTER CORE MALL OPERATIONS UP 18.6% WITH ACQUISITIONS $465 MILLION REFINANCING WITH GE CAPITAL REAL ESTATE COMPLETED IN THIRD QUARTER ------------------------------------------- CROWN AMERICAN REALTY TRUST ANNOUNCES THIRD QUARTER RESULTS AND DECLARES DIVIDENDS Johnstown, Pa. - Crown American Realty Trust (NYSE:CWN), a real estate investment trust, today announced financial results and operating information for the third quarter and for the nine months ended September 30, 1998. The Board of Trustees also declared regular quarterly dividends on its common and senior preferred shares. _______________________________ "The transformation of our mall portfolio continued to produce positive operating results in the third quarter, and the recent $465 million mortgage loan refinancing significantly improved our future debt maturities and balance sheet," stated Crown American Realty Trust President, Mark E. Pasquerilla. "Funds from Operations ("FFO") was $0.26 per share, up 8.3% from the $0.24 per share reported for the third quarter of 1997, and in line with consensus analyst expectations for the quarter. The transformation of our malls was evident by the growing contribution to FFO from core mall operations (before interest, land sales, G&A, and non-recurring items) which was up $3.9 million ($0.108 per share) or 18.6% in the third quarter compared to 1997, of which $1.2 million was from existing properties and $2.7 million was from recently acquired properties. Other positive trends include signed mall shop leases which for the first nine months were 69% higher than the same period in 1997, and leases out-for- signature, our "leasing pipeline", which were up 49% in the same period. Mall shop occupancy at September 30, 1998 was 81% compared to 77% a year ago, and comparable mall shop tenant sales for the nine months were up 7.2% from 1997. Turning to our capital structure, the $465 million fixed rate mortgage loan refinancing completed earlier this quarter strengthened the Company by eliminating $140 million of floating rate debt and by reducing the amount of debt maturities by $425 million through December 31, 2003 compared with the previous loan maturity schedule. Pasquerilla concluded, "We are pleased with the higher revenues and FFO results in the third quarter and first nine months of 1998 and we remain positive for 1999. For the remainder of 1998, we are somewhat more cautious in our outlook. We expect fourth quarter FFO to range from $0.34 to $0.36 per share, which would result in full year FFO per share for 1998 up modestly over 1997, which would mark the first annual FFO increase since 1994. The increase in expected fourth quarter FFO over the third quarter would be consistent with the $0.07 to $0.10 per share fourth quarter increase that normally occurs from seasonal factors. Last year we achieved $0.36 per share in the fourth quarter. The slightly lower to flat performance expected for the fourth quarter compared to 1997 relates to several items including: opening delays on some of the new tenant leases signed in the first half of this year; expected lower temporary and seasonal leasing income at existing properties due mainly to less available space for seasonal tenants; higher interest costs from higher borrowing levels; and finally, last year's fourth quarter was boosted by unusually low snow removal costs, and by higher recovery income from year-end adjustments to interim period CAM estimates. For 1999 our current expectation is for near double-digit FFO growth, with full year FFO per share in the mid to upper $1.20's; however, our projections are contingent on generally stable market and economic conditions in 1999. In summary, the transformation of our malls and the continuing strong leasing results and leasing pipeline occurring this year should have continuing positive impacts on 1999 revenues and FFO; 1999 will also benefit from the full-year impact of the acquisitions completed in the second quarter of this year." Dividend Information The Board of Trustees declared a regular quarterly dividend of $.20 per common share and $1.375 per senior preferred share. Both dividends are payable on December 11, 1998 to shareholders of record on November 27, 1998. Financial Information - Third Quarter For the quarter ended September 30, 1998, the Company reports that Funds from Operations (FFO) before allocations to minority interest and to preferred dividends was $13.0 million, up from $11.9 million in the third quarter of 1997. FFO allocable to common shares was $7.0 million, or $0.26 per common share, compared with $6.4 million, or $0.24 per common share, for the third quarter of 1997. The increase in FFO before allocations to minority interest and to preferred dividends was due primarily to $1.3 million ($0.036 per share) in higher mall shop and anchor base and percentage rents from the existing mall portfolio arising from increased occupancy and higher rental rates and $2.7 million ($0.074 per share) in operating income from properties acquired since the third quarter of 1997 (Valley Mall, Jacksonville Mall, Crossroads Mall, and Greater Lewistown center). The increases were partially offset by $2.1 million ($0.059 per share) in higher net interest expense mainly from higher average outstanding debt, $0.4 million ($0.011 per share) from lower gain on land sales, and $0.2 million ($0.006 per share) in higher preferred dividends. Compared to the immediately preceding second quarter of 1998, FFO was lower by $0.5 million ($0.020 per share) due to $0.3 million lower gain on land sales, $0.9 million higher net interest expense due to higher average borrowings, offset by $0.4 million higher property operating income. Total revenues for the third quarter were $36.0 million, up $5.3 million or 17% from $30.7 million in the third quarter of 1997. Revenues in the quarter were favorably impacted by $3.9 million from the acquired properties and $1.7 million from increases in the existing portfolio, offset by $0.3 million lower revenues due to the sale of Middletown Mall in July 1998. As previously announced, in connection with the $465 million mortgage loan refinancing that occurred in August 1998, the Company incurred a $22.5 million extraordinary loss on early extinguishment of debt which included $16.6 million in prepayment penalties and $5.9 from a write-off of unamortized deferred financing costs related to the refinanced debt. In addition, as also previously disclosed, during the third quarter the Company changed its method of accounting for percentage (contingent) rent as required by the Emerging Issues Task Force, Issue No. 98-9. The Company implemented the new accounting method as a change in accounting method and accordingly recorded a $1.7 million retroactive cumulative catch-up adjustment as of January 1, 1998 representing the cumulative effect of the change on prior years' percentage rent income. The impact on percentage rent income of the new method for the nine months ended September 30, 1998 was a reduction of percentage rents of about $80,000 from what would have been reported under the Company's previous method of accounting. This current year impact was recorded in the third quarter; the impact on the previously reported first and second quarters was immaterial. As a result of the extraordinary loss on early extinguishment of debt and the cumulative effect of the change in accounting, the Company reported a net loss for the third quarter of 1998 of $15.5 million. After deducting preferred dividends, there was a net loss applicable to common shares of $18.9 million, or $0.72 per common share. This compares to $2.5 million net loss applicable to common shares, or $0.10 per share, in the third quarter of 1997. For the first nine months of 1998, FFO before allocations to minority interest and to preferred dividends was $40.1 million ($0.82 per common share) compared to $32.3 million ($0.79 per share) for the same period of 1997. Total revenues for the nine months were $105.5 million compared to $92.6 million in 1997, of which $7.6 million related to the acquired properties. Operating Information During the third quarter of 1998, leases for 120,000 square feet of mall shops were signed resulting in $3.1 million in annual base rental income. This compares to 213,000 square feet for $3.6 million during the same period in 1997. A total of 79 leases were signed, which included 31 renewals and 48 new leases. Annualized revenues from new and renewal signed mall shop leases during the nine months were $19.6 million, 69 percent higher than the same period in 1997. For the nine months ended September 30, 1998, the average rent for mall shop leases signed was $19.18 per square foot compared with $19.23 for the same period in 1997. The average rents per square foot were $20.14 for new leases and $18.21 for renewals in the first nine months of 1998, compared with $21.55 and $17.20, respectively, in 1997. Also during the third quarter of 1998, leases for 25,000 square feet in non-mall shop and/or freestanding locations were signed resulting in $262,000 in annual base rental income. For the nine months ended September 30, 1998, the Company has signed leases on 128,000 square feet resulting in $1.3 million in annual base rental income. The average base rent of the portfolio as of September 30, 1998 was $17.30 per square foot. This is a 3.7 percent increase from $16.69 per square foot as of September 30, 1997, and the 20th consecutive quarter that average base rent has increased. Overall, mall shop occupancy was 81 percent as of September 30, 1998. This compares to 77 percent as of September 30, 1997. Mall shop occupancy is unchanged from June 30, 1998 as new tenant leases signed during the quarter were offset by mall shop tenant closings, the pace of which picked up modestly in the third quarter. However, for the full nine months, mall shop tenant closings were 31% lower than the comparable period of 1997. Mall shop comparable sales for the nine months ended September 30, 1998 were $153.97 per square foot. This is a 7.2 percent increase over the $143.67 reported for September 30, 1997. Occupancy costs, that is, base rent, percentage rent and expense recoveries as a percentage of mall shop sales at all properties, were 10.2 percent as of September 30, 1998, as compared to 10.7 percent as of September 30, 1997. Temporary and promotional leasing income for the first nine months of 1998 amounted to $5.1 million, as compared to $4.9 million for the same period in 1997. Expansion/Renovation Projects Work on a major expansion at Patrick Henry Mall (Newport News, Va.) is nearly complete. A new 140,000 square foot May Company (Hecht's) department store is scheduled to open November 11. On that same day, Dillard's will also mark the completion of the expansion and renovation of their store. In addition, 29,000 square feet of mall shop space is being added as part of the project, all of which is pre-leased and about 22,000 square feet of which is currently open. Construction is continuing at Washington Crown Center (formerly Franklin Mall, Washington, Pa.). This project includes the addition of a new 140,000 square foot May Company (Kaufmann's) department store, a new 14-screen Hollywood Theater, a relocation of the food court and a complete mall renovation. A Fall 1999 completion is expected. At Valley Mall (Hagerstown, Md.) work is continuing on a mall expansion that is to include a new, 120,000 square foot May Company (Hecht's) department store, a 16-screen R/C Theatres complex, a new Gardenside Cafe food court and additional mall shop space. A Fall 1999 completion is scheduled. Work on a 95,000 square foot May Company (Kaufmann's) department store is underway at Nittany Mall (State College, Pa.). Kaufmann's is replacing Value City at this location and is expected to open in Spring 1999. The May Department Stores Company is responsible for the construction of their new Kaufmann's unit. The major expansion of the Wal-Mart location at Martinsburg Mall (Martinsburg, WV) was recently completed. The project increased the size of Wal-Mart from 90,000 square feet to 204,000 square feet. Wal-Mart was responsible for nearly all construction costs on this project. Multi-Screen Theaters and Other Additions In August, a 13 screen Regal Cinema opened at West Manchester Mall (York, Pa.). The 43,400 square foot theater features stadium seating and state-of-the-art sound systems. Construction is nearing completion on a new 14-screen Cinemark Theater at Oak Ridge Mall (Oak Ridge, Tenn.). This 50,000 square foot theater will open later this year. In October, Crown American announced that an agreement has been finalized with Hollywood Theatres to open a 14-screen, 58,656 square foot theater at North Hanover Mall (Hanover, Pa.). Construction is expected to begin in early 1999 with a late 1999 opening planned. At Schuylkill Mall (Frackville, Pa.) a 53,000 square foot U.S. Factory Outlet store will open in early November in the former Hess's department store location. This is the first Pennsylvania unit for the New York City-based retailer. Financings In October, Moody's Investors Services issued a release revising their Ratings Outlook relative to the Company's senior preferred shares to positive from stable. The release stated that the change reflects the Company's progress in redeveloping its malls, in expanding occupancy and rental levels, and in improving its financial stability, including reducing future debt refinancing risk as a result of the new $465 million mortgage loan completed in August. As previously announced on August 31, the Company completed a $465 million ten- year mortgage loan refinancing with GE Capital Real Estate. The new loan is secured by cross-collateralized mortgages on fifteen of the Company's regional malls. The loan bears a stated interest rate of 7.43% and is payable monthly, interest only during the first two years, and then amortizing during the last eight years based on a 25 year amortization schedule. While the all-in interest cost is lower that the debt that was refinanced, the increase in overall debt levels after the refinancing will offset the lower all-in rate. During the third quarter the Company acquired 282,500 common shares under a common share buyback program announced on September 1. The shares were acquired at an average price of $8.602 per share and are held as treasury shares. Acquisitions and Dispositions As previously announced, in July the Company sold Middletown Mall in Fairmont, West Virginia, together with about 60 acres of adjacent undeveloped land and outparcels, to an unrelated third party. The aggregate purchase price was $12.25 million. The Company received $8.5 million in cash, less closing costs, and received a $3.5 million one-year 9.5 percent mortgage from the purchaser, secured by a first mortgage on the outparcels and vacant land and a second mortgage on the mall. Gain of approximately $1.3 million has been deferred until all conditions for profit recognition under FASB 66 are satisfied. ___________________________________________________ Crown American Realty Trust through various affiliates and subsidiaries owns, acquires, operates and develops regional shopping malls in Pennsylvania, Maryland, West Virginia, Virginia, New Jersey, North Carolina, Tennessee and Georgia. The current portfolio includes 27 regional shopping malls. This news release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based on assumptions and expectations, which may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy. Future events and actual results, financial and otherwise, may differ from the results discussed in the forward-looking statements. Risk and other factors that might cause differences, some of which could be material,include, but are not limited to, economic and credit market conditions, the ability to refinance maturing indebtedness, the impact of competition, consumer buying trends, financing and development risks, construction and lease-up delays, cost overruns, the level and volatility of interest rates, the rate of revenue increases versus expenses increases and financial stability of tenants within the retail industry, as well as other risks listed from time to time in the Company's reports filed with the Securities and Exchange Commission or otherwise publicly disseminated by the Company. A copy of the Company's Supplemental Financial and Operational Information Package is attached. For additional information, please call Investor Relations at 1-800-860-2011. - 30 - EXHIBIT 99(b)
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE CROWN AMERICAN REALTY TRUST THIRD QUARTER 1998 OTHER FINANCIAL AND OPERATING DATA (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1998 vs. 1997 1998 vs. 1997 (in thousands, except per share data) FINANCIAL AND ANALYTICAL DATA: Total FFO - Incr (decr) - 1998 $000 $ per share $ 000 $ per share compared to 1997: Base and percentage rents from anchors $ 1,282 $ 0.036 $ 3,857 $ 0.107 and mall shops Temporary and promotional leasing (94) (0.003) (160) (0.004) income Mall operating costs, net of tenant (19) (0.001) (1,063) (0.029) recovery income Utility and misc. mall income, equity 57 0.002 266 0.007 in joint venture Straight line rental income 17 0.000 261 0.007 Core mall operations--same properties 1,243 0.034 3,161 0.088 Impact of Valley, Jacksonville, 2,683 0.074 5,689 0.157 Crossroads, and Lewistown Core mall operations - all properties 3,926 0.108 8,850 0.245 Property admin. and general & admin. (121) (0.003) (642) (0.018) expenses Cash flow support earned (66) (0.002) 184 0.005 Interest expense (2,136) (0.059) (477) (0.013) Gain on sale of outparcel land (399) (0.011) (34) (0.001) Fee income on sales of non-company 18 0.000 94 0.003 properties Lease buyout income (90) (0.002) (174) (0.005) Impact on per share amount from changes in the number of common shares and units outstanding 0.000 0.005 0.000 0.015 Change before pref'd div's and 1,132 0.036 7,801 0.231 minority interest Allocation to preferred shareholders (230) (0.006) (7,105) (0.195) (preferred dividends) Allocation to minority interest in (375) 0.000 (677) 0.000 Operating Partnership Rounding to whole cents 0.000 (0.010) 0.000 (0.006) Change in FFO allocable to common $ 527 $ 0.020 $ 19 $ 0.030 shareholders Three Months Ended Nine Months Ended September 30, September 30, 1998 1997 1998 1997 Funds from Operations ($000 except per share data): Net income (loss) $ (15,480) $ 688 $ (12,339) $ (1,629) Adjustments: Minority Interest in (7,052) (862) (8,463) (1,655) Operating Partnership Depreciation and amortization 11,380 9,704 31,803 29,519 - - real estate Operating covenant 658 658 1,973 1,973 amortization Cash flow support amounts 1,000 1,066 2,926 2,742 Cumulative effect of a change 0 0 1,703 0 in accounting method Extraordinary loss on early 22,512 631 22,512 1,363 extinguishment of debt FFO before allocations to 13,018 11,885 40,115 32,313 minority interest and pref'd shares Allocation to preferred (3,438) (3,208) (10,313) (3,208) shareholders (preferred dividends) Allocation to minority (2,622) (2,246) (8,122) (7,444) Interest in Operating Partnership FFO allocable to common $ 6,958 $ 6,431 $ 21,680 $ 21,661 shares FFO per common share $ 0.26 $ 0.24 $ 0.82 $ 0.79 Average shares outstanding 26,418 27,092 26,456 27,467 during the period Shares outstanding at period 26,207 26,557 26,207 26,557 end Avg. partnership units and 36,369 36,530 36,367 36,905 shares outstanding during period Partnership units and shares 36,156 35,996 36,156 35,996 outstanding at period end Components of Minimum Rents: Anchor - contractual or base $ 5,885 $ 5,403 $ 17,523 $ 16,638 rents Mall shops - contractual or 17,882 14,793 51,278 43,933 base rents Straight line rental income 111 15 383 (63) Ground lease - contractual or 464 378 1,450 1,128 base rents Lease buyout income 4 94 8 182 Operating covenant (658) (658) (1,973) (1,973) amortization Total minimum rents $ 23,688 $ 20,025 $ 68,669 $ 59,845 Components of Percentage Rents: Anchors $ 685 $ 612 $ 2,176 $ 2,017 Mall shops and ground leases 648 678 2,213 1,881 $ 1,333 $ 1,290 $ 4,389 $ 3,898
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE CROWN AMERICAN REALTY TRUST THIRD QUARTER 1998 OTHER FINANCIAL AND OPERATING DATA (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1998 1997 1998 1997 (in thousands, except as noted) EBITDA: earnings (including gain on sale of outparcel land) before interest, taxes, all depreciation and amortization and extraordinary items $ 23,875 $ 20,579 $ 70,339 $ 62,371 Debt and Interest: Fixed rate debt at period end $ 593,852 $ 400,538 $ 593,852 $ 400,538 Variable rate debt at period end 64,752 131,362 64,752 131,362 Total debt at period end $ 658,604 $ 531,900 $ 658,604 $ 531,900 Weighted avg. interest rate on 7.6% 7.7% 7.5% 7.7% fixed rate debt for the period Weighted avg. interest rate on 7.6% 7.8% 7.5% 7.9% variable rate debt for the period Total interest expense for period $ 11,780 $ 9,644 $ 32,941 $ 32,464 Amort. of deferred debt cost for 667 813 2,394 2,498 period (incl. in interest exp) Capitalized interest costs during 517 716 1,812 1,982 period Capital Expenditures Incurred: Allowances for mall shop tenants $ 5,003 $ 100 $ 11,516 $ 2,973 Allowances for anchor tenants 572 2,059 572 4,714 Leasing costs and commissions 1,518 591 3,864 2,152 Expansions and major renovations * 22,291 6,498 33,391 17,243 Acquisition of operating properties 0 0 64,973 0 All other capital expenditures 464 975 1,530 1,245 (included in Other Assets) Total Capital Expenditures during $ 29,848 $ 10,223 $ 115,846 $ 28,327 the period * 1998 data includes approximately $11 million in deposits to expansion construction and related escrows under the new GECC mortgage loan. OPERATING DATA: Mall shop GLA at period end (000 5,706 5,349 sq. ft.) Occupancy percentage at period end 81% 77% Comp. Store Mall shop sales - 9 $ 153.97 $ 143.67 months (per sq. ft.) Mall shop occupancy cost percentage 10.2% 10.7% at period end Average mall shop base rent at $ 17.30 $ 16.69 period end (per sq. ft.) Mall shop leasing for the period: New leases - sq. feet (000) 70 108 512 282 New leases - $ per sq. ft. $ 25.45 $ 18.95 $ 20.14 $ 21.55 Number of new leases signed. 48 46 236 151 Renewal leases - sq. feet (000) 50 105 508 323 Renewal leases - $ per sq. ft. $ 25.81 $ 14.65 $ 18.21 $ 17.20 Number of renewal leases signed. 31 42 237 146 Tenant Allowances for leases signed during the period: First Generation Space - per $ 0.00 $ 46.34 $ 20.04 $ 36.30 sq. ft. Second Generation Space - per $ 8.28 $ 7.83 $ 12.34 $ 6.58 sq. ft. Leases Signed during the period by: First Generation Space - sq. 5 20 37 75 feet (000) Second Generation Space - sq. 115 193 983 530 feet (000) Theater and free-standing leasing for the period: New leases- sq. feet (000) 25 4 128 220 New leases-$ per sq. ft. $ 10.29 $ 9.17 $ 10.16 $ 10.11 Tenant allowances - $ per sq. ft. $ 16.76 $ 0.00 $ 29.76 $ 20.37
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE CROWN AMERICAN REALTY TRUST Consolidated Statements of Operations (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1998 1997 1998 1997 (in thousands, except per share data) Rental operations: Revenues: Minimum rent $ 23,688 $ 20,025 $ 68,669 $ 59,845 Percentage rent 1,333 1,290 4,389 3,898 Property operating cost 8,362 7,047 24,382 21,484 recoveries Temporary and promotional 1,715 1,613 5,110 4,875 leasing Net utility income 633 601 2,224 2,014 Miscellaneous income 221 165 749 484 Net 35,952 30,741 105,523 92,600 Property operating costs: Recoverable operating costs 10,969 9,681 32,437 28,536 Property administrative costs 548 502 1,728 1,526 Other operating costs 539 457 1,646 1,381 Depreciation and amortization 11,038 9,396 30,835 28,530 Net 23,094 20,036 66,646 59,973 Net 12,858 10,705 38,877 32,627 Other expenses: General and administrative 1,098 1,003 3,457 3,052 Interest 11,780 9,644 32,941 32,464 Net 12,878 10,647 36,398 35,516 Net (20) 58 2,479 (2,889) Property sales, disposals and adjustments: Gain on sale of outparcel land 0 399 934 968 Income (loss) before extraordinary items, minority interest, and cumulative effect of a change in accounting (20) 457 3,413 (1,921) method Extraordinary loss on early (22,512) (631) (22,512) (1,363) extinguishment of debt Cumulative effect on prior years (to December 31, 1997) of a change in accounting 0 0 (1,703) 0 method Income (loss) before minority (22,532) (174) (20,802) (3,284) interest Minority interest in (income) loss of Operating Partnership 7,052 862 8,463 1,655 Net income (loss) (15,480) 688 (12,339) (1,629) Dividends on preferred shares (3,438) (3,208) (10,313) (3,208) Net income (loss) applicable to common shareholders $ (18,918) $ (2,520) $ (22,652) $(4,837) Per common share information: Basic and Diluted EPS: Income (loss) before extraordinary item and cumulative effect of a change in accounting method $ (0.10) $ (0.08) $ (0.19) $ (0.14) Extraordinary item (0.62) (0.02) (0.62) (0.04) Cumulative effect on prior years of a change in accounting 0 0 (0.05) 0 method Net (loss) $ (0.72) $ (0.10) $ (0.86) $ (0.18) Weighted average shares 26,418 27,092 26,456 27,467 outstanding (000) FFO per share $ 0.26 $ 0.24 $ 0.82 $ 0.79
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE CROWN AMERICAN REALTY TRUST Consolidated Balance Sheets (in thousands, except share and per share data) September 30, December 31, 1998 1997 (Unaudited) Assets Income-producing properties: Land $ 145,773 $ 132,055 Buildings and improvements 926,102 852,674 Deferred leasing and other charges 42,065 39,912 Net 1,113,940 1,024,641 Accumulated depreciation and amortization (337,776) (315,125) Net 776,164 709,516 Investment in joint venture 5,914 5,808 Cash and cash equivalents, non-restricted 5,006 9,472 Restricted cash and escrow deposits 22,699 14,237 Tenant and other receivables 13,617 16,986 Deferred charges and other assets 33,487 29,930 Net $ 856,887 $ 785,949 Liabilities and Shareholders' Equity Debt on income-producing properties $ 658,604 $ 541,713 Accounts payable and other liabilities 31,028 29,132 Net 689,632 570,845 Minority interest in Operating Partnership 13,376 25,334 Commitments and contingencies Shareholders' equity: Non-redeemable senior preferred shares, 11% cumulative, $.01 par value, 2,500,000 shares issued and outstanding 25 25 Common shares, par value $.01 per share, 120,000,000 shares authorized, 27,741,542 and 27,727,212 shares issued at September 30, 1998 and December 31, 1997, 277 277 respectively Additional paid-in capital 313,439 308,571 Accumulated deficit (145,210) (106,881) Net 168,531 201,992 Less common shares held in treasury at cost; 1,534,398 and 1,251,898 shares at September 30, 1998 and December 31, 1997, respectively. (14,652) (12,222) Net 153,879 189,770 Net $ 856,887 $ 785,949
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE CROWN AMERICAN REALTY TRUST Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 1998 1997 (in thousands) Cash flows from operating activities: Net income (loss) $ (12,339) $ (1,629) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Minority interest in Operating Partnership (8,463) (1,655) Equity earnings in joint venture (382) (383) Depreciation and amortization 36,233 34,200 Extraordinary loss on early extinguishment of debt 22,512 1,363 Cumulative effect of a change in accounting method 1,703 0 Net changes in: Tenant and other receivables 1,675 3,081 Deferred charges and other assets (9,319) (9,388) Accounts payable and other liabilities 4,530 (5,653) Net cash provided by operating activities 36,150 19,936 Cash flows from investing activities: Investment in income properties and related escrow (34,626) (27,082) deposits Acquisition of enclosed malls (64,972) 0 Proceeds from sale of Middletown Mall 8,148 0 Distributions from joint venture 0 150 Net cash (used in) investing activities (91,450) (26,932) Cash flows from financing activities: Net proceeds from issuance of senior preferred 0 118,723 shares Net proceeds from exercise of stock options and 132 921 dividend reinvestment plan Proceeds from issuance of debt, net of issuance cost 551,535 81,282 Debt repayments (469,176) (120,832) Dividends and distributions paid on common shares (21,830) (22,096) and partnership units Dividends paid on senior preferred shares (10,313) (2,483) Purchase of common shares held in treasury (2,430) (11,237) Cash flow support payments 2,916 0 Net cash provided by financing activities 50,834 44,278 Net (decrease) increase in cash and cash equivalents (4,466) 37,282 Cash and cash equivalents, beginning of period 9,472 6,746 Cash and cash equivalents, end of period $ 5,006 $ 44,028 Interest paid (net of capitalized amounts) $ 30,547 $ 30,965 Interest capitalized $ 1,812 $ 1,982 Non-cash financing activities: Cash flow support credited to minority interest and paid-in capital that was prefunded in 1995. $ 0 $ 2,742 Issuance of partnership units related to Middletown Mall and Greater Lewistown acquisitions $ 4,479 $ 0 Assumption of debt related to Greater Lewistown and Crossroads acquisitions $ 14,718 $ 0 Preferred dividends accrued, but unpaid as of period $ 0 $ 725 end
EX-27 2
5 3-MOS Dec-31-1998 Sep-30-1998 5,006 0 13,617 0 0 0 1,113,940 337,776 856,887 0 0 0 25 277 153,577 856,887 0 105,523 0 66,646 3,457 0 32,941 3,413 0 3,413 0 (22,512) (1,703) (12,339) (0.86) (0.86)
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