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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-12588
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Center Trust, Inc.
(Exact name of registrant as specified in charter)
Maryland 95-4444963
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
3500 Sepulveda Boulevard, Manhattan Beach, California 90266
(Address of principal executive offices) (Zip Code)
(310) 546-4520
(Registrant's telephone number, including area code)
----------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for at least the past 90 days. YES [X] NO [_]
As of November 14, 2000, 26,701,759 shares of Common Stock, Par Value $.01
Per Share, were outstanding.
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CENTER TRUST, INC.
FORM 10-Q
INDEX
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2000
(unaudited) and December 31, 1999............................ 3
Consolidated Statements of Operations (unaudited) for the
three and nine months ended September 30, 2000 and 1999...... 4
Consolidated Statements of Cash Flows (unaudited) for the nine
months ended September 30, 2000 and 1999..................... 5
Notes to Consolidated Financial Statements (unaudited)........ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 8
PART II OTHER INFORMATION............................................. 14
SIGNATURES................................................................ 15
2
CENTER TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30, December 31,
2000 1999
------------- ------------
(unaudited)
ASSETS
------
Rental properties................................... $ 980,504 $1,030,689
Accumulated depreciation and amortization........... (153,566) (143,610)
--------- ----------
Rental properties, net.............................. 826,938 887,079
Cash and cash equivalents........................... 12,050 5,204
Tenant receivables, net............................. 14,969 12,267
Other receivables................................... 7,085 6,181
Restricted cash..................................... 26,467 20,577
Deferred charges, net............................... 20,946 20,966
Other assets........................................ 2,277 3,305
--------- ----------
TOTAL............................................. $ 910,732 $ 955,579
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Secured debt...................................... $ 484,207 $ 524,468
7 1/2% Convertible subordinated debentures........ 128,548 128,548
7 1/4% Exchangeable subordinated debentures....... 30,000 30,000
Accrued dividends and distributions............... 5,991 9,963
Accrued interest.................................. 4,544 5,441
Accounts payable and other accrued expenses....... 9,608 6,760
Accrued construction costs........................ 817 1,753
Tenant security and other deposits................ 4,632 5,948
--------- ----------
Total liabilities............................... 668,347 712,881
--------- ----------
MINORITY INTERESTS:
Operating Partnership (1,759,442 and 1,654,725
units issued as of September 30, 2000 and
December 31, 1999, respectively)................. 14,529 14,091
Other minority interests.......................... 1,547 1,319
--------- ----------
Total minority interests........................ 16,076 15,410
--------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock ($.01 par value, 100,000,000 shares
authorized; 26,701,759 26,647,968 shares issued
and outstanding as of September 30, 2000 and
December 31, 1999, respectively.................. 266 266
Additional paid-in capital........................ 361,886 361,412
Accumulated distributions and deficit............. (135,843) (134,390)
--------- ----------
Total stockholders' equity...................... 226,309 227,288
--------- ----------
TOTAL............................................. $ 910,732 $ 955,579
========= ==========
See Notes to Consolidated Financial Statements.
3
CENTER TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Three Months
Ended September Nine Months Ended
30, September 30,
---------------- ------------------
2000 1999 2000 1999
------- ------- -------- --------
REVENUES:
Rental revenues.......................... $24,540 $26,870 $ 74,201 $ 79,710
Expense reimbursements................... 7,579 8,065 23,004 24,054
Percentage rents......................... 428 532 1,422 1,541
Other income............................. 1,494 1,234 4,595 3,755
------- ------- -------- --------
Total revenues....................... 34,041 36,701 103,222 109,060
------- ------- -------- --------
EXPENSES:
Interest................................. 14,993 13,938 44,693 40,544
Property Operating Costs:
Common Area............................ 4,943 5,722 15,215 16,565
Property taxes......................... 3,241 3,476 9,915 10,781
Leasehold rentals...................... 369 438 1,094 1,285
Marketing.............................. 269 265 801 610
Other operating........................ 950 1,167 2,891 3,516
Depreciation and amortization............ 6,444 6,263 19,227 18,387
General and administrative............... 1,577 2,404 4,208 5,365
------- ------- -------- --------
Total expenses....................... 32,786 33,673 98,044 97,053
------- ------- -------- --------
Income from Operations before other
items................................... 1,255 3,028 5,178 12,007
Net Gain (Loss) on the Sale of Rental
Properties.............................. 2,473 (214) 14,197 20,361
Minority Interests:
Operating Partnership.................. (258) (126) (1,079) (4,255)
Other.................................. (79) (78) (229) (223)
------- ------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM......... 3,391 2,610 18,067 27,890
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT.................. (589) (857) (2,453) (4,905)
------- ------- -------- --------
NET INCOME............................... $ 2,802 $ 1,753 $ 15,614 $ 22,985
======= ======= ======== ========
BASIC AND DILUTED INCOME PER SHARE:
Income before extraordinary item......... $ 0.13 $ 0.10 $ 0.68 $ 1.09
Extraordinary loss on early
extinguishment of debt.................. (0.02) (0.03) (0.09) (0.19)
------- ------- -------- --------
Net Income............................... 0.11 $ 0.07 0.59 $ 0.90
======= ======= ======== ========
Weighted Average Basic and Diluted Shares
Outstanding............................. 26,670 26,144 26,668 25,539
======= ======= ======== ========
See Notes to Consolidated Financial Statements
4
CENTER TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
September 30,
--------------------
2000 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 15,614 $ 22,985
Adjustment to reconcile net income to net cash Provided
by operating activities:
Depreciation and amortization of rental properties.... 19,227 18,387
Amortization of deferred financing costs.............. 2,719 2,337
Net gain on Sale of rental properties................. (14,197) (20,361)
Extraordinary loss--early extinguishment of debt...... 2,453 4,905
Minority interests in operations...................... 1,308 4,478
Net changes in operating assets and liabilities......... (15,401) (4,629)
--------- ---------
Net cash provided by operating activities........... 11,723 28,102
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of properties............................... -- (18,959)
Construction and development costs...................... (10,038) (9,870)
Proceeds from sale of rental property................... 73,070 65,044
--------- ---------
Net cash provided by investing activities........... 63,032 36,215
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage financing................ (3,352) (2,990)
Proceeds from mortgages................................. 17,390 122,000
Repayment of mortgages.................................. (35,335) (74,930)
Purchase of convertible debentures...................... -- (9,561)
Borrowings on secured line of credit.................... 198,670 126,213
Repayment of secured line of credit..................... (216,906) (143,657)
Proceeds from sale of common stock...................... -- 33,903
Purchase of common stock................................ -- (20,115)
Repurchase of OP Units.................................. -- (48,363)
Costs of obtaining financing............................ -- (1,476)
Increase in restricted cash............................. (5,890) (10,130)
Dividends to shareholders............................... (20,792) (27,316)
Distributions to minority interests..................... (1,694) (4,610)
--------- ---------
Net cash used in financing activities............... (67,909) (61,032)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS............... 6,846 3,285
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD....... 5,204 6,636
--------- ---------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD............. $ 12,050 $ 9,921
========= =========
See Notes to Consolidated Financial Statements
5
CENTER TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis Of Presentation
Center Trust, Inc., (the "Company"), a Maryland Corporation, is a self-
administered and self-managed real estate investment trust ("REIT"). The
Company engages in the ownership, management, leasing, acquisition,
development and redevelopment of unenclosed retail shopping centers in the
western United States. As of September 30, 2000, the Company owned 53 retail
shopping centers (the "Properties") comprising 9.0 million square feet of
total shopping center gross leasable area ("GLA").
The accompanying financial statements and related notes of the Company are
unaudited; however, they have been prepared in accordance with generally
accepted accounting standards or principles generally accepted in the United
States of America for interim financial reporting and the instructions to Form
10-Q and the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared under generally accepted accounting principles
have been condensed or omitted pursuant to such rule. In the opinion of
management, all adjustments considered necessary for fair presentation of the
Company's financial position, results of operations and cash flows have been
included. These financial statements should be read in conjunction with the
Company's Form 10-K for the year ended December 31, 1999.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in
Financial Statements. SAB 101 provides guidance on applying generally accepted
accounting principles to revenue recognition issues in financial statements.
The Company is required to adopt SAB 101 by the fourth quarter of 2000.
Management does not expect the adoption of SAB 101 to have a material effect
on the Company's results of operations or on its financial position.
2. Secured Debt
On March 31, 2000, the Company obtained a $200 million secured credit
facility with GE Capital Real Estate. Borrowings under the credit facility are
secured by deeds of trust on certain of the Company's assets. The credit
facility bears interest at a rate of LIBOR plus 250 basis points. The credit
facility has a two-year maturity with the ability to extend the term for an
additional year. The new credit facility replaced the Company's previous
credit facility which would have matured on December 31, 2000 and included a
required pay-down to $85 million by June 30, 2000. In connection with the
replacement of the old credit facility, the Company recorded an extraordinary
loss on the early extinguishment of debt of $1.9 million.
3. Property Dispositions
During the third quarter of 2000, the company completed the sale of two
community centers to Kimco Income REIT. The two sales closed during the
quarter were Vista Balboa, a 117,000 square foot shopping center located in
San Diego, California and Charleston Plaza, a 234,000 square foot shopping
center located in Las Vegas, Nevada. After the assumption of debt of
approximately $14.7 million, net cash proceeds were approximately
$16.2 million, which were used to reduce the outstanding balance on the
company's secured credit facility. In connection with the sales, the company
recorded a gain on sale of $2.5 million and an extraordinary loss on the early
extinguishment of debt of $0.6 million, related to the payment of certain
prepayment penalties.
4. Per Share Data
In accordance with SFAS No. 128 (Earnings Per Share), basic earnings per
share ("EPS") is based on the weighted average number of shares of common
stock outstanding during the period and diluted EPS is based on
6
CENTER TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the weighted average number of shares of common stock outstanding combined
with the incremental weighted average shares that would have been outstanding
if all dilutive potential common shares had been issued as of the beginning of
the period. The weighted average number of shares of common stock used in the
computation of basic and diluted EPS for the three month period ended
September 30, 2000 and 1999 were 26,670,000 and 26,144,000, respectively. The
weighted average number of shares of common stock used in the computation of
basic and diluted EPS for the nine month period ended September 30, 2000 and
1999 were 26,668,000 and 25,539,000, respectively. Units held by limited
partners in the Operating Partnership may be exchanged for shares of common
stock of the Company on a one-for-one basis, in certain circumstances, and
therefore are not dilutive. Accordingly, the increase in weighted average
shares outstanding under the diluted method over the basic method in every
period presented is due entirely to the effect of outstanding options issued
under the Company's Amended and Restated 1993 Stock Option and Incentive Plan
and the Company's convertible and exchangeable debentures.
On October 20, 2000, the Company paid a $0.21 dividend per share to
shareholders of record as of October 2, 2000.
5. Subsequent Events
Subsequent to September 30, 2000, the Company completed the sale of three
community shopping centers to Kimco Income REIT under the previously announced
contract. The assets sold included; Pavilions' Center, a 200,000 square foot
center located in Federal Way, Washington; Montebello Town Center, a 250,000
square foot shopping center located in Montebello, California and Covina Town
Square, a 360,000 square foot shopping center located in Covina, California.
Net proceeds, after the assumption of approximately $23.7 million of debt and
the repayment of approximately $35 million of debt, of approximately $18.2
million was used to reduce the outstanding balance on the Company's secured
credit facility.
In addition, subsequent to the end of the third quarter the Company also
completed the sale of two of its freestanding Kmart locations. In connection
with the sale, the Company repaid debt, with an interest rate of 11.45%, of
approximately $6.8 million, excluding prepayment penalties of approximately
$1.3 million. Net proceeds of approximately $0.6 million were used to reduce
the outstanding balance on the Company's secured credit facility.
On November 3, 2000, the Company repaid its $30 million of Exchangeable
Debentures at par, pursuant to the Company's optional redemption rights. The
debentures had a scheduled maturity of December 27, 2003. Under the terms of
the debenture agreement, the debentures could have put to the Company as of
December 27, 2000.
In connection with the repayment, the Company entered into a loan with Sanwa
Bank California secured by the El Camino North Shopping Center in Oceanside,
California which property has been collateral for the Exchangeable Debentures.
The Company borrowed approximately $25 million on a $38 million loan
commitment. The balance of the commitment will be used to fund the
redevelopment of the shopping center. The loan bears interest at LIBOR plus
250 basis points and has an initial term of 28 months with two twelve month
extension options. The remaining proceeds necessary to repay the Exchangeable
Debentures were funded through the Company's secured credit facility.
7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The following discussion should be read in conjunction with the accompanying
consolidated financial statements and notes thereto.
Forward Looking Statements
The following discussion of financial condition and Results of Operations
contains certain forward-looking statements that are subject to risk and
uncertainty. In particular, statements pertaining to our capital resources and
liquidity, portfolio performance and results of operations contain forward-
looking statements. Likewise, all our statements regarding anticipated growth
in our funds from operations and anticipated market conditions, demographics
and results of operations are forward-looking statements. Forward looking
statements involve numerous risks and uncertainties and you should not rely on
them as predictions of future events. Forward-looking statements depend on
assumptions, data or methods which may be incorrect or imprecise and we may
not be able to realize them. We do not guarantee that the transactions and
events described will happen as described, or that they will happen at all.
You can identify forward-looking statements by the use of forward-looking
terminology such as "believes," "expects," "may," "will," "should," "would,"
"seeks," "approximately," "intends," "plans," "pro forma" "estimates" or
"anticipates" or the negative of these words and phrases or similar words or
phrases. You can also identify forward-looking statements by discussions of
strategy, plans or intentions. The following factors, among others, could
cause actual results and future events to differ materially from those set
forth or contemplated in the forward-looking statements:
. our ability to successfully complete financings and asset dispositions
in an amount sufficient to repay the Convertible Debentures;
. defaults on or non-renewal of leases by tenants;
. increased interest rates and operations costs;
. our failure to obtain necessary outside financing;
. difficulties in identifying properties to acquire and completing
acquisitions;
. difficulties in disposing of properties;
. our failure to successfully operate acquired properties and operations;
. our failure to successfully develop property;
. our failure to maintain our status as a REIT;
. environmental uncertainties and risks related to natural disasters;
. financial market fluctuations; and
. changes in real estate and zoning laws and increases in real property
tax rates.
Our success also depends upon economic trends generally, as well as income
tax laws, governmental regulation, legislation, population changes and other
matters discussed above in section entitled "Risk Factors." We caution you,
however, that any list of risk factors may not be exhaustive.
Results of Operations
Comparison of the three and nine month periods ended September 30, 2000 to
the three and nine month periods ended September 30, 1999.
Rental revenues decreased by $2.4 million to $24.5 million for the three
months ended September 30, 2000 from $26.9 million for the same period ended
September 30, 1999. The decrease is primarily due to the sale of
8
two community retail centers, four single tenant assets and one freestanding
theater subsequent to September 30, 1999.
Rental revenues decreased by $5.5 million to $74.2 million for the nine
months ended September 30, 2000 from $79.7 million for the nine months ended
September 30, 1999. Approximately $5.3 million of the decrease is due to the
sale of five community retail centers, six single tenant facilities and one
free standing theater from the period January 1, 1999 through September 30,
2000.
Property operating costs decreased by $1.3 million to $9.8 million for the
three months ended September 30, 2000 from $11.1 million for the three-month
period ended September 30, 1999. Property operating costs decreased by $2.9
million to $29.9 million for the nine months ended September 30, 2000 from
$32.8 million for the nine months ended September 30, 1999. Substantially all
of the decrease is a result of decreased property taxes and operating costs
from the sale of the properties previously discussed. Partially offsetting the
decrease was slightly higher operating costs at the Company's existing
properties for both the three and nine periods ended September 30, 2000.
Interest expense increased by $1.1 million to $15.0 million for the three-
month period ended September 30, 2000 from $13.9 million for three-month
period ended September 30, 1999. The increase is due to an increase in the
effective interest rate on the Company's credit facility and higher fixed rate
debt for the period ended September 30, 2000 partially offset by lower average
debt outstanding of approximately $38 million on the same credit facility. The
decrease in the average debt outstanding was primarily due to proceeds
received from the sale of assets.
Interest expense increased to $44.7 million for the nine months ended
September 30, 2000 from $40.5 million for the nine months ended September 30,
1999. The increase resulted from higher effective interest rates partially
offset by lower average debt outstanding in the period ended September 30,
2000 compared to the same period in 1999 for the reasons discussed above. See
additional discussion in the following "Liquidity Sources and Requirements."
General and administrative costs decreased by $0.8 million and $1.2 million
for the three and nine month periods ended September 30, 2000, when compared
to the same period of 1999, respectively. The decreases are primarily due to
the Company's reorganization in the 4th quarter of 1999 to reduce its
operating costs.
Net income increased by $1.0 million to $2.8 million for the three-month
period ended September 30, 2000 from $1.8 million for the same period ended
September 30, 1999. The increase is primarily due the $2.5 million gain on the
sale of two community centers in 2000 partially offset by lower income from
operations due to the sale of properties previously discussed.
Net income decreased by $7.4 million to $15.6 million for the nine months
ended September 30, 2000 from $23.0 million for the nine months ended
September 30, 1999. Included in net income for 2000 was a $2.5 million gain on
the sale of two community centers, a $2.6 million net gain on the sale of a
single tenant facility located in Glendora, California and a $9.1 million net
gain on the sale of the AMC Theater located in Covina Town Square Shopping
Center. Net income for 1999 included a $20.6 million gain resulting from the
sale of the Sam's Club in Fountain Valley, California, a single tenant
facility and The City Center, in San Francisco, California.
9
Selected Property Financial Information
Net operating income (defined as revenues, less property operating costs)
for the Company's properties is as follows:
Nine Months
Ended
September 30,
---------------
2000 1999
------- -------
Retail Properties (53 in 2000 and 59 in 1999):
Regional Malls............................................ $13,405 $13,128
Community Centers......................................... 56,443 58,454
Single Tenants............................................ 2,457 3,863
Other income................................................ 1,001 858
------- -------
Net Operating Income.................................... $73,306 $76,303
======= =======
The following summarizes the percentage of leased gross leasable area (GLA)
(excluding non-owned GLA) as of:
September 30, December 31,
2000 1999
------------- ------------
Retail Properties (53 in 2000 and 56 in 1999):
Community Centers............................. 94.7% 95.0%
Regional Malls................................ 92.7 90.9
Single Tenants................................ 100.0 100.0
Aggregate Portfolio........................... 94.7 94.9
Funds from Operations
The Company considers funds from operations ("FFO") to be an alternative
measure of the performance of an equity REIT since such measure does not
recognize depreciation and amortization expenses as operating expenses. FFO is
defined, as outlined in the October 1999 White Paper, by the National
Association of Real Estate Investment Trusts ("NAREIT") as net income plus
depreciation and amortization of real estate, less gains or losses on sales of
properties.
10
The Company computes FFO on both a basic and diluted basis. The diluted
basis assumes the conversion of the convertible and exchangeable debentures
into shares of common stock. The following table summarizes the Company's
computation of FFO and provides certain additional disclosures (dollars in
thousands):
Three Months
Ended September Nine Months Ended
30, September 30,
---------------- ------------------
2000 1999 2000 1999
------- ------- -------- --------
FUNDS FROM OPERATIONS
Net income............................... $ 2,802 $ 1,753 $ 15,614 $ 22,985
Adjustments to reconcile net income to
funds from operations:
Depreciation and Amortization:
Buildings and improvements........... 3,781 4,265 12,444 12,783
Tenant improvements and allowances... 1,276 1,341 3,976 3,899
Leasing costs........................ 1,218 619 2,517 1,603
Minority Interests..................... 167 41 797 4,005
Extraordinary loss--early
extinguishment of debt................ 589 857 2,453 4,905
(Gain) Loss on the Sale of Assets...... (2,473) 214 (14,197) (20,361)
Other.................................. 461 1,498 1,278 2,134
------- ------- -------- --------
Funds from Operations, basic............. 7,821 10,588 24,882 31,953
Debenture interest expense............... 2,954 2,954 8,862 9,221
Amortization of debenture financing
costs................................... 320 322 961 970
------- ------- -------- --------
Funds from operations, diluted........... $11,095 $13,864 $ 34,705 $ 42,144
======= ======= ======== ========
Funds from operations, on a basic basis, decreased $7.1 million to $24.9
million for the nine months ended September 30, 2000, from $32.0 million for
the same period in 1999. On a diluted basis, assuming conversion of the
debentures and other common stock equivalents, funds from operations decreased
$7.4 million to $34.7 million from $42.1 million. The decrease in funds from
operations is principally a result of the reasons stated above under Results
of Operations.
Funds from operations do not represent cash flows from operations as defined
by generally accepted accounting principles and should not be considered as an
alternative to net income as an indicator of Center Trust's operating
performance or to cash flows as a measure of liquidity.
Liquidity Sources and Requirements
The primary strategic focus of the Company during 2000 has been the
repayment of the $128.5 million of Convertible Debentures maturing on January
15, 2001. To date, the Company has executed transactions that have created
availability on its secured credit facility of approximately $65 million. The
company is in the process of executing the following additional transactions
that, if successfully completed, will create the remaining required
availability to meet this maturity. No assurance can be given that these
additional transactions will be successfully completed or that the Company
will have sufficient liquidity to repay the Convertible Debentures.
On March 31, 2000, the Company obtained a $200 million secured credit
facility with GE Capital Real Estate. Borrowings under the credit facility are
secured by deeds of trust on certain of the Company's assets. The credit
facility expires in April, 2002 and the Company has the ability to extend the
term for an additional year. The credit facility bears interest at a rate of
LIBOR plus 250 basis points. As of September 30, 2000, the outstanding
borrowings on the Credit Facility were $140 million. Borrowings on the new
credit facility were used to pay down the remaining balance of the Company's
previous credit facility, which would have matured on December 31, 2000. In
connection with the repayment of this debt, the Company recorded a $1.9
million first quarter extraordinary loss for the early extinguishment of debt.
11
On November 3, 2000, the Company repaid its $30 million of Exchangeable
Debentures at par, pursuant to the Company's optional redemption rights. The
debentures had a scheduled maturity of December 27, 2003. Under the terms of
the debenture agreement, the debentures could have put to the Company as of
December 27, 2000. In connection with the repayment, the Company entered into
a loan with Sanwa Bank California secured by the El Camino North Shopping
Center in Oceanside, California which property has been collateral for the
Exchangeable Debentures. The Company borrowed approximately $25 million on a
$38 loan commitment. The balance of the commitment will be used to fund the
redevelopment of the shopping center. The loan bears interest at LIBOR plus
250 basis points and has an initial term of 28 months with two twelve month
extension options. The proceeds necessary to repay the Exchangeable Debentures
were funded through the Company's secured credit facility.
During the third quarter of 2000, the Company completed the sale of two
community centers to Kimco Income REIT. The two properties sold were Vista
Balboa, a 117,000 square foot shopping center located in San Diego, California
and Charleston Plaza, a 234,000 square foot shopping center located in Las
Vegas, Nevada. In connection with the sales, the company recorded a gain on
sale of $2.5 million and an extraordinary loss on the early extinguishment of
debt of $0.6 million, related to the payment of certain prepayment penalties.
Subsequent to September 30, 2000, the Company completed the sale of three
community shopping centers to Kimco Income REIT under the previously announced
contract. The three assets sold included; Pavilions' Center, a 200,000 square
foot center located in Federal Way, Washington; Montebello Town Center, a
250,000 square foot shopping center located in Montebello, California and
Covina Town Square, a 360,000 square foot shopping center located in Covina,
California. Net proceeds from the sale of the five community centers, after
the assumption of $38.4 million of debt and repayment of approximately $35
million of debt, was $34.4 million that was used to reduce the outstanding
balance on the Company's secured credit facility. The Company currently
anticipates closing the sale of the sixth and final community center to Kimco
Income REIT and the sale of an additional community center to an unrelated
buyer, shortly, subject to satisfaction of closing conditions. The sale of
these two assets is expected to generate net cash proceeds of approximately
$15 million.
The company is in the process of completing three separate mortgages with
one lender, each secured by a single asset, which the Company anticipates will
close prior to the end of November 2000. Proceeds from these mortgages will be
used to defease the existing cross-collateralized mortgage that is secured by
these three assets and two additional assets. The balance of the outstanding
debt on these five assets is approximately $54 million, including the cost of
defeasance. The resulting two unencumbered assets will be added to the
collateral base for the Company's secured credit facility as discussed below.
The Company has a commitment from the lender on its existing secured credit
facility that would result in a modification of the facility. The current
availability on the facility is approximately $65 million. The Company intends
to pledge certain unencumbered assets to the facility that will provide access
to approximately $24 million of increased capacity. As part of the proposed
modification, the maximum advance rate against the assets pledged to the
facility will be increased from 70% to 78% of underwritten value. The increase
in advance rate will give the Company access to approximately $23 million of
additional capacity. The proposed modification to the facility is conditional
upon the resolution of certain post-closing conditions and documentation,
including consent of third parties and approval of rating agencies, which
consent and approvals have not yet been obtained.
To the extent that the Company utilizes the $23 million of capacity provided
by the increase in the advance rate the applicable interest rate on the
facility will increase. The interest rate on the facility increases from
250 basis points over LIBOR to 275 basis points over LIBOR to the extent the
balance is greater than 70% but less than 75% of underwritten value. To the
extent that the advance rate is greater than 75% of underwritten value but
less than 78%, the interest rate increases to 300 basis points over LIBOR.
The Company has identified and is marketing for sale certain shopping
centers in accordance with its stated strategy of identifying assets for sale
that have reached stabilized values. Proceeds generated from the sale of
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these assets will be used to reduce the balance drawn on the secured credit
facility and for reinvestment in existing shopping centers or acquisition of
new assets.
Cash Flows
Net cash provided by operating activity decreased by $16.4 million from
$28.1 million for the nine months ended September 30, 1999 to $11.7 million
for the same period of 2000. The decrease resulted primarily from the
additional working capital used by operations and from the sale of the twelve
properties in the period from January 1, 1999 through September 30, 2000, as
previously discussed.
Net cash provided by investment activities was $63.0 million for the nine
months ended September 30, 2000 as compared to net cash provided of $36.2
million for the nine months ended September 30, 1999. The decrease is
primarily due to the acquisition of one unenclosed shopping center and one
anchor tenant at an already owned community center in 1999. Proceeds from the
sale of properties were consistent in the period ended September 30, 2000 when
compared to the same period of 1999. Financing activities used cash of $67.9
million for the nine months ended September 30, 2000 as compared to cash used
by financing activities for the nine months ended September 30, 1999 of $61.0
million.
Inflation
Center Trust's long term leases contain provisions designed to mitigate the
adverse impact of inflation on its results from operations. Such provisions
include clauses enabling Center Trust to receive percentage rents based upon
tenants' gross sales, which generally increase as prices rise, and/or, in
certain cases, escalation clauses are often related to increases in the CPI or
similar inflation indices. In addition, many of Center Trust's leases are for
terms of less than ten years, which permits Center Trust to seek to increase
rents upon re-rental at market rates if rents are below then existing market
rates. Many of Center Trust's leases require the tenants to pay a pro rata
share of operating expenses, including common area maintenance, real estate
taxes, insurance and utilities, thereby reducing Center Trust's exposure to
increases in costs and operating expenses from inflation.
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PART II--OTHER INFORMATION
Item 1: Legal Proceedings
None
Item 2: Changes in Securities
None
Item 3: Defaults Upon Senior Securities
None
Item 4: Submission of Matters to a Vote of Security Holders
None
Item 5: Other Information
None
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
On August 9, 2000, the Company filed a report on Form 8-K to make available
additional financial and operational information concerning the Company and
properties owned as of June 30, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CENTER TRUST, INC.
/s/ STUART J.S. GULLAND
By: _________________________________
Stuart J.S. Gulland
Chief Operating Officer
(Principal Financial Officer)
/s/ EDWARD A. STOKX
By: _________________________________
Edward A. Stokx
Senior Vice President of Finance
(Principal Accounting Officer)
Dated: November 14, 2000
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