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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2001
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 10, 2001, 27,622,072 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, 2001 (unaudited)
and December 31,
2000............................................................ 1
Consolidated Statements of Operations (unaudited) for the three
and nine months ended September 30, 2001 and 2000 .............. 2
Consolidated Statements of Cash Flows (unaudited) for the nine
months ended September 30, 2001 and 2000 ....................... 3
Notes to Consolidated Financial Statements (unaudited).......... 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 11
PART II OTHER INFORMATION............................................... 12
SIGNATURES............................................................... 13
CENTER TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30, December 31,
2001 2000
------------- ------------
(unaudited)
ASSETS
Rental properties................................... $ 730,661 $ 776,667
Accumulated depreciation and amortization........... (144,863) (136,828)
--------- ---------
Rental properties, net.............................. 585,798 639,839
Cash and cash equivalents........................... 4,895 6,164
Tenant receivables, net............................. 8,086 11,920
Other receivables................................... 5,621 5,603
Restricted cash securities.......................... 10,416 9,531
Deferred charges, net............................... 15,348 18,030
Other assets........................................ 2,875 3,492
--------- ---------
TOTAL.............................................. $ 633,039 $ 694,579
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Secured debt....................................... $ 399,693 $ 318,052
7 1/2% Convertible subordinated debentures......... -- 128,548
Accrued dividends and distributions................ 1,173 6,035
Accrued interest................................... 1,592 5,827
Accounts payable and other accrued expenses........ 11,807 10,161
Accrued construction costs......................... 570 1,060
Tenant security and other deposits................. 1,624 1,797
--------- ---------
Total liabilities................................ 416,459 471,480
--------- ---------
MINORITY INTERESTS:
Operating Partnership (1,339,644 and 2,015,692
units issued as of September 30, 2001 and
December 31, 2000, respectively).................. 11,025 15,075
Other minority interests........................... 1,457 1,620
--------- ---------
Total minority interests......................... 12,482 16,695
--------- ---------
COMMITMENTS AND CONTINGENCIES:
STOCKHOLDERS' EQUITY:
Common stock ($.01 par value, 100,000,000 shares
authorized; 27,622,072 and 26,721,226 shares
issued and outstanding as of September 30, 2001
and December 31, 2000, respectively).............. 276 267
Additional paid-in capital......................... 364,166 359,418
Accumulated distributions and deficit.............. (160,344) (153,281)
--------- ---------
Total stockholders' equity....................... 204,098 206,404
--------- ---------
TOTAL.............................................. $ 633,039 $ 694,579
========= =========
See Notes to Consolidated Financial Statements.
1
CENTER TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ------------------
2001 2000 2001 2000
--------- --------- -------- --------
REVENUES:
Rental revenues...................... $ 17,108 $ 24,540 $ 52,119 $ 74,201
Expense reimbursements............... 6,160 7,579 18,066 23,004
Percentage rents..................... 274 428 968 1,422
Other income......................... 1,200 1,494 3,734 4,595
--------- --------- -------- --------
Total revenues................... 24,742 34,041 74,887 103,222
--------- --------- -------- --------
EXPENSES:
Interest............................. 8,099 14,993 26,230 44,693
Property Operating Costs:
Common Area........................ 4,510 4,943 13,389 15,215
Property taxes..................... 2,412 3,241 7,322 9,915
Leasehold rentals.................. 272 369 806 1,094
Marketing.......................... 232 269 826 801
Other operating.................... 1,182 950 3,512 2,891
Depreciation and amortization........ 5,099 6,444 15,513 19,227
Reorganization Costs................. -- -- 2,613 --
General and administrative........... 1,196 1,577 4,207 4,208
--------- --------- -------- --------
Total expenses................... 23,002 32,786 74,418 98,044
--------- --------- -------- --------
INCOME FROM OPERATIONS BEFORE OTHER
ITEMS............................... 1,740 1,255 469 5,178
GAIN (LOSS) ON SALE OF RENTAL
PROPERTIES.......................... -- 2,473 (2,379) 14,197
MINORITY INTERESTS:
Operating Partnership................ (383) (258) (102) (1,079)
Other minority interests............. (91) (79) (260) (229)
--------- --------- -------- --------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM.................. 1,266 3,391 (2,272) 18,067
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT.............. -- (589) (1,385) (2,453)
--------- --------- -------- --------
NET INCOME (LOSS).................... $ 1,266 $ 2,802 $ (3,657) $ 15,614
========= ========= ======== ========
BASIC AND DILUTED INCOME PER SHARE:
Income (Loss) before extraordinary
item................................ $ 0.05 $ 0.13 $ (0.08) $ 0.68
Extraordinary loss on early
extinguishment of debt.............. -- (0.02) (0.05) (0.09)
--------- --------- -------- --------
Net Income (Loss).................... $ 0.05 $ 0.11 $ (0.13) $ 0.59
========= ========= ======== ========
Weighted Average Basic and Diluted
Shares Outstanding.................. 27,622 26,670 27,362 26,668
========= ========= ======== ========
See Notes to Consolidated Financial Statements
2
CENTER TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
September 30,
------------------
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income......................................... $ (3,657) $ 15,614
Adjustment to reconcile net (loss) income to net cash
Provided by operating activities:
Depreciation and amortization of rental properties...... 15,513 19,227
Amortization of deferred financing costs................ 3,057 2,719
Net (loss) gain on Sale of rental properties............ 2,379 (14,197)
Extraordinary loss on early extinguishment of debt...... 1,385 2,453
Minority interests in operations........................ 102 1,308
Net changes in operating assets and liabilities........... (2,660) (15,401)
-------- --------
Net cash provided by operating activities............. 16,119 11,723
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction and development costs........................ (5,928) (10,038)
Net proceeds from sale of rental property................. 45,074 73,070
-------- --------
Net cash provided by investing activities............. 39,146 63,032
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable....................... (140,564) (3,352)
Proceeds from mortgages................................... -- 17,390
Repayment of mortgages.................................... -- (35,335)
Borrowings on secured line of credit...................... 133,369 198,670
Repayment of secured line of credit....................... (39,712) (216,906)
Increase in restricted cash............................... (885) (5,890)
Dividends to shareholders................................. (7,897) (20,792)
Distributions to minority interests....................... (845) (1,694)
-------- --------
Net cash used in financing activities................. (56,534) (67,909)
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS...... (1,269) 6,846
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD......... 6,164 5,204
-------- --------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD............... $ 4,895 $ 12,050
======== ========
See Notes to Consolidated Financial Statements
3
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, 2001, the Company owned 35 retail
shopping centers (the "Properties") comprising 6.4 million square feet of
total shopping center gross leasable area ("GLA").
The accompanying financial statements and related notes of the Company are
unaudited; however, they have been prepared in accordance with generally
accepted accounting principles for interim financial reporting and the
instructions to Form 10-Q and the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared under generally accepted
accounting principles have been condensed or omitted pursuant to such rule. In
the opinion of management, all adjustments considered necessary for fair
presentation of the Company's financial position, results of operations and
cash flows have been included. These financial statements should be read in
conjunction with the Company's Form 10-K for the year ended December 31, 2000.
2. Secured Debt
On January 16, 2001, the Company repaid in full its 7 1/2% Convertible
Subordinated Debentures. The outstanding balance of $128.5 million was repaid
with proceeds from the Company's Secured Credit Facility.
On July 6, 2001, the Company refinanced an existing mortgage on North
Mountain Village, located in Phoenix, Arizona. The $7.1 million mortgage bears
interest at 7.68% and matures in 2011.
3. Property Disposition
In March 2001, the Company sold three community shopping centers and one
single tenant facility for a combined sales price of $38.4 million. The assets
sold included Westgate North Shopping Center, a 104,000 square foot shopping
center located in Tacoma, Washington, Center of El Centro, a 179,000 square
foot shopping center located in El Centro, California, Madera Marketplace a
169,000 square foot shopping center located in Madera, California, and K-Mart
Madera, a 86,000 square foot single tenant facility, located in Madera,
California. After repayment of debt of $16.9 million, net proceeds of $17
million were used to reduce the outstanding balance on the Company's Credit
Facility. During the fourth quarter of 2000, the Company recorded a $4.8
million impairment of assets held for sale, a result of the anticipated sales
of the Westgate North Shopping Center and the Center of El Centro. After
consideration of the fourth quarter impairment loss adjustment, the Company
recorded a gain on the sale of assets of $0.9 million during 2001. In
addition, the Company recorded an extraordinary loss of $0.8 million for the
early extinguishment of debt related to the payment of certain prepayment
penalties and elimination of certain deferred costs.
During the 2nd quarter of 2001, the Company sold one community shopping
center and one single tenant facility. The assets sold were K-Mart Rocklin, an
86,000 square foot single tenant facility located in Rocklin, California and
Marshalls' Plaza, a 79,000 square foot shopping center located in Modesto,
California. After repayment of debt of $1.4 million, net proceeds of $8.3
million were used to reduce the outstanding balance on the Company's Credit
Facility. The Company recorded an extraordinary loss of $566,000 for the early
extinguishment of debt related to the payment of certain prepayment penalties
and elimination of certain deferred costs.
4
CENTER TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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 and nine-month periods
ended September 30, 2001 were 27,622,000 and 27,362,000, respectively. The
weighted average number of common shares for the same periods ended September
30, 2000 were 26,670,000 and 26,668,000, 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.
On October 22, 2001, the Company paid a $0.04 dividend per share to
shareholders of record as of October 1, 2001. Year-to-date the Company has
paid dividends of $0.12 per share or $3.3 million.
5. Reorganization Costs
At the end of the second quarter of 2001, the Company recorded a non-
recurring reorganization expense of $2.6 million. The expense consists of
employee severance and other related costs. Substantially all amounts have
been paid as of September, 2001.
6. Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 prohibits the use of the "pooling of interests" method.
SFAS No. 142 requires the cessation of the amortization of goodwill subsequent
to December 31, 2001. SFAS No. 141 is effective immediately and SFAS No. 142
will be effective January 2002. The new standards are not expected to have a
significant impact on our financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
of Long-Lived Assets." This Statement addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supercedes
FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed of." The provisions of this Statement
are effective for financial statements issued for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years. This new
standard is not expected to have a significant impact on our financial
statements.
5
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,
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:
. 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. We caution you, however, that any list of risk
factors may not be exhaustive.
Results of Operations
Comparison of the three months ended September 30, 2001 to the three months
ended September 30, 2000.
Rental revenues decreased by $7.4 million to $17.1 million for the three
months ended September 30, 2001 from $24.5 million for the three months ended
September 30, 2000. The decrease of $7.4 million was due to the sale of 14
community shopping centers and four single tenant facilities, for a total of
18 properties sold since September 30, 2000.
6
Expense reimbursements decreased $1.4 million to $6.2 million for the three
months ended September 30, 2001 from $7.6 million for the three months ended
September 30, 2000. A decrease of $1.8 million was the result of decreased
recoveries from the sale of the properties previously discussed. Partially
offsetting the decrease was an increase in recoveries from held properties.
Similarly, property operating costs decreased by $1.2 million to $8.6 million
for the three months ended September 30, 2001 from $9.8 million for the three
months ended September 30, 2000, $1.9 million of which was due to the sold
properties. Property operating costs for held properties increased $0.7
million.
Interest expense decreased to $8.1 million for the three months ended
September 30, 2001 from $15.0 million for the three months ended September 30,
2000. The decrease was primarily due to $5.7 million from lower average debt
outstanding and $1.9 million from lower effective interest rates in the third
quarter of 2001 compared to the same period in 2000. The lower average debt
outstanding was due to the repayment of the $128.5 million 7% Convertible
Subordinated Debentures and proceeds from the sale of assets during the later
half of 2000 and the first half of 2001, which were used to reduce the
Company's Secured Credit Facility.
General and Administrative costs decreased by $0.4 million from $1.6 million
for the three months ended September 30, 2000 to $1.2 million for the three
months ended September 30, 2001. The decrease is due to the cost savings
related to the reorganization that occurred during the second quarter of 2001.
The Company reported net income of $1.3 million for the three months ended
September 30, 2001 compared to net income of $2.8 million for the same period
ended September 30, 2000. The decrease in net income of $1.5 million is
primarily due to lower net operating income of $8.1 million in 2001 and the
gain on the sale of assets, net of an extraordinary loss, of $1.9 million in
2000, partially offset by lower interest expense of $6.9 million and lower
depreciation expense of $1.3 million. Net operating income decreased $7.2
million as a result of the sale of 18 properties, previously discussed. The
decrease in depreciation expense is also attributed to the sale of properties.
Comparison of the nine months ended September 30, 2001 to the nine months
ended September 30, 2000.
Rental revenues decreased by $22.1 million to $52.1 million for the nine
months ended September 30, 2001 from $74.2 million for the nine months ended
September 30, 2000. The decrease of $21.7 million is due to the sale of 16
community shopping centers and four single tenant facilities, for a total of
20 properties sold since June 30, 2000.
Expense reimbursements decreased $4.9 million to $18.1 million for the nine
months ended September 30, 2001 from $23.0 million for the nine months ended
September 30, 2000. A decrease of $4.8 million is attributable to the sale of
properties. Similarly, property operating costs decreased by $4.0 million to
$25.9 million for the nine months ended September 30, 2001 from $29.9 million
for the nine months ended September 30, 2000.
Interest expense decreased to $18.5 million for the nine months ended
September 30, 2001 to $26.2 million from $44.7 million for the nine months
ended September 30, 2000. The decrease is the result of lower average debt
outstanding as previously discussed and lower interest rates. Effective
interest rates were 6.7% for the nine month period ended September 30, 2001
compared to 8.4% for the same period of 2000.
General and Administrative costs was $4.2 million for both the nine months
periods ended September 30, 2001 and September 30, 2000.
The Company reported a net loss of $3.7 million for the nine months ended
September 30, 2001 compared to net income of $15.6 million for the same period
ended September 30, 2000. The net loss was primarily due to lower net
operating income of $21.5 million from the sale of properties, $2.6 million in
reorganization costs and a $2.5 million loss on the sale of assets partially
offset by lower interest expense of $18.5 million and lower depreciation
expense of $3.7 million. The lower net operating income and depreciation
expense is primarily due to the sale of properties. The gain in 2000 resulted
primarily from a $14.2 million gain on the sale of assets.
7
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,
-----------------
2001 2000
-------- --------
Retail Properties (35 at September 30, 2001 and 53 at
September 30, 2000):
Regional Malls........................................ $ 12,568 $ 13,405
Community Centers..................................... 34,728 56,443
Single Tenants........................................ 1,082 2,457
Other income............................................ 654 1,001
-------- --------
Net Operating Income................................ $ 49,032 $ 73,306
======== ========
The following summarizes the percentage of leased GLA (excluding non-owned
GLA as of:
September 30, December 31,
2001 2000
------------- ------------
Retail Properties (35 at September 30, 2001 and
41 at December 31, 2000):
Community Centers............................ 91.9% 93.1%
Regional Malls............................... 92.6 90.9
Single Tenants............................... 100.0 100.0
Aggregate Portfolio.......................... 92.3 93.3
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, excluding gains or losses on
sales of properties. 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 those indicators in evaluating the
Company's operating performance or liquidity. Further, the methodology for
computing FFO utilized by the Company may differ from that utilized by other
equity REITs and, accordingly may not be comparable to such other REITs.
8
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 Nine Months Ended
September 30, September 30,
------------------- ------------------
2001 2000 2001 2000
--------- --------- -------- --------
FUNDS FROM OPERATIONS
Net income (loss).................... $ 1,266 $ 2,802 $ (3,657) $ 15,614
Adjustments to reconcile net income
(loss) to funds from operations:
Depreciation and Amortization:
Buildings and improvements....... 3,097 3,781 9,541 12,444
Tenant improvements and
allowances...................... 1,142 1,276 3,376 3,976
Leasing costs.................... 650 1,218 1,963 2,517
Minority Interests................... 287 167 (209) 797
Extraordinary loss--early
extinguishment of debt.............. -- 589 1,385 2,453
(Gain) Loss on Sale of Assets........ -- (2,473) 2,379 (14,197)
Reorganization Costs................. -- -- 2,613 --
Other................................ 56 461 594 1,278
--------- --------- -------- --------
Funds from operations, basis and
diluted............................. $ 6,498 $ 7,821 $ 17,985 $ 24,882
========= ========= ======== ========
Funds from operations, on a basic basis, decreased to $6.5 million for the
three months ended September 30, 2001, as compared to $7.8 million for the
same period in 2000. Funds from operations decreased to $18.0 million for the
nine months ended September 30, 2001, as compared to $24.9 million for the
same period in 2000. The three and nine month decreases in funds from
operations are principally a result of the reasons stated above under Results
of Operations adjusted for the items outlined in the above table.
Liquidity Sources and Requirements
The primary focus of the Company during 2000 and early 2001 was to repay the
7 1/2% Convertible Subordinated Debentures and to continue to strengthen its
financial stability and flexibility. Through a series of asset sales and debt
refinancing transactions, as well as a modification of the Company's Credit
Facility, the Company was able to successfully repay it's 7 1/2% Convertible
Debentures which matured on January 15, 2001. Further, with the sale of the
three community shopping centers and a single tenant facility in the first
quarter of 2001, the Company reduced its outstanding balance on its Secured
Credit Facility to a level below 70% loan to value, which reduced the interest
rate paid on the outstanding balance to 250 basis points over LIBOR by
March 31, 2001. Asset sales during the second quarter and cash from operating
results in the third quarter have further enabled the Company to reduce its
outstanding balance by $11.1 million. This combined with the reduction of the
dividend, discussed below, allows the Company the anticipated cash and
financial flexibility required to meet its capital requirements in the near
future.
During 2001, the maximum availability under the Credit Facility was reduced
from $193 million to $170 million as a result of the sale of assets which were
previously included as collateral within the pool of assets securing the
Credit Facility. The Company currently has availability of approximately $12
million at September 30, 2001.
The Company announced that it will pay a quarterly dividend of $0.04 per
share, for each of the first three quarters of 2001, which equates to an
annual dividend rate of $0.16 per share and approximates the Company's minimum
required distribution to maintain its REIT status. This compares to the annual
dividend of $0.84 paid in the year 2000. The dividend reduction was
necessitated by the contraction in the Company's asset base as a
9
result of the sale of over $290 million in assets over the last twelve months.
The dividend reduction will allow the Company to maximize its retention of
capital, reduce its leverage level, and provide financial flexibility to
appropriately evaluate value-added redevelopment opportunities within its
portfolio, while maintaining its REIT status.
During the 2nd quarter of 2001, the Company sold one community shopping
center and one single tenant facility. The assets sold were K-Mart Rocklin, a
86,000 single tenant facility located in Rocklin, California and Marshalls'
Plaza, a 79,000 square foot shopping center located in Modesto, California.
After repayment of debt of $1.4 million, net proceeds of $8.3 million were
used to reduce the outstanding balance on the Company's Credit Facility.
During the first quarter of 2001, the Company sold three community shopping
centers and one single tenant facility for a combined sales price of $38.4
million. The assets sold included Westgate North Shopping Center, a 104,000
square foot shopping center located in Tacoma, Washington, Center of El
Centro, a 179,000 square foot shopping center located in El Centro,
California, Madera Marketplace a 169,000 square foot shopping center located
in Madera, California, and K-Mart Madera, a 86,000 square foot single tenant
facility, located in Madera, California. The total net proceeds from the sales
were $17 million, after repayment of debt of approximately $16.9 million that
reduced the outstanding balance on the Company's Credit Facility.
On July 6, 2001, the Company refinanced an existing mortgage on North
Mountain Village, located in Phoenix, Arizona. The $7.1 million mortgage bears
interest at 7.68% and matures in 2011. The Company has no other debt
maturities in 2001.
Debt maturities of $238.8 million in 2002, as well as significant amounts
due from 2003 to 2015, will require refinancing. Loans maturing in 2002
include the amount outstanding on the Company's Secured Credit Facility of
$147 million, which is due on March 31, 2002 and $50 million of mortgage loans
with Chase Manhattan Bank, which are due on December 10, 2002. The Secured
Credit Facility has a 1-year extension available subject to certain covenant
compliance. The mortgage loans with Chase Manhattan Bank provides for three
one-year extensions. The Company expects to extend the maturity of the Secured
Credit Facility. The Company believes, based on the collateral available
within the Properties, that it will be able to effect such refinancings.
Cash Flows
Net cash provided by operating activity increased by $4.4 million from $11.7
million for the nine months ended September 30, 2000 to $16.1 million for the
same period of 2001. The increase primarily resulted from lower working
capital requirements in the period ended September 30, 2001 compared to the
same period of September 30, 2000 partially offset by a decrease in cash
provided by operations, a result of the sale of assets.
Net cash from investment activities was $39.1 million for the nine months
ended September 30, 2001, compared to $63.0 million for the nine months ended
September 30, 2000. The decrease was the result of lower proceeds received
from the sale of assets in 2001 compared to the same period of 2000. Proceeds
received from the sale of properties included the sale of four community
shopping centers and two single tenant facilities in 2001 and the sale of two
community shopping centers, one single tenant facility and a freestanding
theatre in 2000. Financing activities used cash of $56.5 million for the nine
months ended September 30, 2001 as compared to $67.9 million for the nine
months ended September 30, 2000. The decrease was primarily the result of the
repayment of the 7 1/2% Convertible Subordinated Debentures in January 2001
partially offset by lower pay-down of the Company's Secured Credit Facility in
2001 compared to 2000.
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
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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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk primarily due to fluctuations in
interest rates. Specifically, the risk resulting from increasing LIBOR-based
interest rates as interest on the Company's Credit Facility of $147.0 million
as well as mortgage notes of $108.3 million are tied to various LIBOR interest
rates. The Credit Facility matures March 31, 2002. The Company is also subject
to market risk resulting from fluctuations in the general level of U.S.
interest rates as $108.4 million of the Company's debt is based on a weighted
average fixed rate of 8.8%. As a result, the Company will be obligated to pay
contractually agreed upon rates on interest on its fixed rate debt, unless
management refinances its existing fixed rate debt and potentially incurs
substantial prepayment penalties. The $36 million of tax-exempt certificates
of participation are tied to a general index of AAA-rated tax-free municipal
bonds.
The following table provides information about the Company's interest rate
sensitivity financial instruments, including, amounts due at maturity,
principal amortization, weighted average interest rates and fair market values
as of September 30, 2001 (dollars in thousands):
Fair
Market
As of September 30 2001 2002 2003 2004 2005 Thereafter Total Value
------------------ ------ -------- ------- ---- ---- ---------- -------- --------
Interest Rate Sensitive
Liabilities:
Credit Facility........ $147,000 $147,000 $147,000
Interest Rate........ LIBOR LIBOR
+ 2.50% + 2.50%
Variable Rate Debt..... $ 83,306 $25,000 $108,306 $108,306
Interest Rate........ LIBOR LIBOR LIBOR
+ 2.50% + 2.366% + 2.407%
Fixed Rate Debt........ $ 8,977 $14,959 $84,451 $108,387 $111,257
Weighted Average
Interest Rate......... 10.45% 10.375% 8.343% 8.787%
Tax Exempt Certificates. $36,000 $ 36,000 $ 36,000
Weighted Average
Interest Rate......... 5.28% 5.28%
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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
None
(b) Reports on Form 8-K
On August 8, 2001, 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, 2001.
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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 RETAIL PROPERTIES, INC.
/s/ EDWARD A. STOKX
By: __________________________________________
Edward A. Stokx
Senior Vice President of Finance
(Principal Financial Officer)
/s/ SIDNEY M. SHIBATA
By: __________________________________________
Sidney M. Shibata
Controller
Dated: November 13, 2001
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