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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 15, 1998
-----------------------------
Prime Retail, L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 333-50139 52-1844882
- -------------------------------- ------------------- ---------------------
(State of other jurisdiction of (Commission File (IRS Employer
incorporation) Number) Identification No.)
100 East Pratt Street
Nineteenth Floor, Baltimore, Maryland 21202
- ---------------------------------------------------- ---------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (410) 234-0782
--------------
No Change
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
================================================================================
<PAGE>
PRIME RETAIL, L.P.
ITEM 7: Financial Statements and Exhibits
The following financial statements and unaudited pro forma financial
information are filed as part of this report:
A. Financial statements of the real estate acquired and disposed, prepared
pursuant to Rule 3.14 of Regulation S-X:
Page
STATEMENT OF REVENUE AND CERTAIN EXPENSES OF THE
PRIME TRANSFERRED PROPERTIES
Statement of Revenue and Certain Expenses for the Three Months
Ended March 31, 1998 (Unaudited) .......................... 3
Notes to Statement of Revenue and Certain Expenses.............. 4
STATEMENT OF REVENUE AND CERTAIN EXPENSES OF HORIZON
GROUP PROPERTIES, L.P.
Statement of Revenue and Certain Expenses for the Three Months
Ended March 31, 1998 (Unaudited)........................... 5
Notes to Statement of Revenue and Certain Expenses.............. 6
STATEMENT OF REVENUE AND CERTAIN EXPENSES OF HORIZON PARTNERSHIP
(Horizon\Glen Outlet Centers Limited Partnership)
Statement of Revenue and Certain Expenses for the Three Months
Ended March 31, 1998 (Unaudited)........................... 7
Notes to Statement of Revenue and Certain Expenses.............. 8
B. Unaudited pro forma financial information required pursuant to Article 11
of Regulation S-X (all capitalized terms used herein and not otherwise
defined shall have the meaning set forth in Prime Retail, L.P.'s
Registration Statement on Form S-4 (File No. 333-50139)):
Page
PRIME PARTNERSHIP (Prime Retail, L.P.)
Pro Forma Post-Transactions (Unaudited)
Basis of Presentation to Pro Forma Consolidated Balance Sheet... 9
Pro Forma Consolidated Balance Sheet as of March 31, 1998....... 10
Notes to Pro Forma Consolidated Balance Sheet................... 11
Basis of Presentation to Pro Forma Consolidated Statement of
Operations for the three months ended March 31, 1998........... 17
Pro Forma Consolidated Statement of Operations for the three
months ended March 31, 1998.................................... 18
Notes to Pro Forma Consolidated Statement of Operations......... 19
HORIZON PARTNERSHIP (Horizon\Glen Outlet Centers Limited Partnership)
Pro Forma Pre-Transactions (Unaudited)
Basis of Presentation to Pro Forma Consolidated Financial
Statements as of and for the three months ended March 31, 1998. 22
Pro Forma Consolidated Balance Sheet as of March 31, 1998....... 23
Notes to Pro Forma Consolidated Balance Sheet................... 24
Pro Forma Consolidated Statement of Operations for the three
months ended March 31, 1998.................................... 25
Notes to Pro Forma Consolidated Statement of Operations......... 26
<PAGE>
Prime Transferred Properties
Statement of Revenue and Certain Expenses
(Unaudited)
(in thousands)
Three Months Ended
March 31, 1998
------------------
Revenue
Base rents....................................... $1,030
Tenant reimbursements............................ 554
Interest and other............................... 352
--------
Total revenue.................................. 1,936
Expenses
Property operating............................... 414
Real estate taxes................................ 212
--------
Total expenses................................. 626
--------
Revenue in excess of certain expenses............... $1,310
========
See accompanying notes.
<PAGE>
Prime Transferred Properties
Notes to the Statement of Revenue and Certain Expenses
(Unaudited)
(in thousands, except for square foot information)
1. Business
The accompanying statements of revenue and certain expenses include the
combined operations of the following factory outlet center properties (the
"Prime Transferred Properties") owned by Prime Retail, L.P.:
Property Name Location Square Footage
------------- -------- --------------
Nebraska Crossing Factory Stores... Gretna, Nebraska 192,000
Indiana Factory Shops.............. Daleville, Indiana 234,000
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying statement of revenue and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission. The statement is not representative of the actual
operations of the Prime Transferred Properties for the period presented nor
indicative of future operations as certain expenses, consisting of interest
expense and depreciation, have been excluded.
A summary of unaudited expenses are as follows:
Three Months Ended
March 31, 1998
------------------
Interest expense.................................... $467
Depreciation and amortization....................... 425
-----
Total unaudited expenses......................... $892
=====
Revenue Recognition
Rental revenue is recognized as income in the period earned.
Use of Estimates
The preparation of the statement of revenue and certain expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenue and
expenses during the reporting periods. Actual results may differ from those
estimates.
3. Rentals
The Prime Transferred Properties have entered into tenant leases with terms
from one to ten years. The leases provide for tenants to share in increases in
operating expenses and real estate taxes in excess of base amounts, as defined.
<PAGE>
Horizon Group Properties, L.P.
Statement of Revenue and Certain Expenses
(Unaudited)
(in thousands)
Three Months Ended
March 31, 1998
------------------
Revenue
Base rents....................................... $5,108
Percentage rents................................. 39
Tenant reimbursements............................ 1,534
Interest and other............................... 428
--------
Total revenue................................. 7,109
Expenses
Property operating............................... 1,383
Real estate taxes................................ 799
--------
Total expenses................................ 2,182
--------
Revenue in excess of certain expenses............... $4,927
========
See accompanying notes.
<PAGE>
Horizon Group Properties, L.P.
Notes to the Statement of Revenue and Certain Expenses
(Unaudited)
(in thousands)
1. Business
The accompanying statement of revenue and certain expenses includes the
combined operations of the 13 outlet centers that were spun-off to Horizon Group
Properties, L.P. ("HGP LP") as if HGP LP had been a separate entity for the
period presented.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying statement of revenue and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission. The statement is not representative of the actual
operations of HGP LP for the period presented nor indicative of future
operations as certain expenses, consisting of interest expense, depreciation,
general and administrative, and certain other operating expenses have been
excluded.
A summary of unaudited expenses are as follows:
Three Months Ended
March 31, 1998
------------------
Interest expense.................................... $3,186
Depreciation and amortization....................... 2,678
General and administrative.......................... 515
Other............................................... 308
--------
Total unaudited expenses......................... $6,687
========
Revenue Recognition
Rental revenue is recognized as income in the period earned.
Use of Estimates
The preparation of the statement of revenue and certain expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenue and
expenses during the reporting periods. Actual results may differ from those
estimates.
<PAGE>
Horizon Partnership
(Horizon\Glen Outlet Centers Limited Partnership)
Statement of Revenue and Certain Expenses
(Unaudited)
(in thousands)
Three Months Ended
March 31, 199
-------------
Revenue
Base rents................................ $27,940
Percentage rents.......................... 1,154
Tenant reimbursements..................... 7,785
Interest and other........................ 2,211
--------
Total revenue........................... 39,090
Expenses
Property operating........................ 5,700
Real estate taxes......................... 3,509
--------
Total expenses.......................... 9,209
--------
Revenue in excess of certain expenses....... $29,881
========
See accompanying notes.
<PAGE>
Horizon Partnership
(Horizon\Glen Outlet Centers Limited Partnership)
Notes to the Statement of Revenue and Certain Expenses
(Unaudited)
(in thousands)
1. Business
The accompanying statement of revenue and certain expenses includes the
combined operations of Horizon\Glen Outlet Centers Limited Partnership ("Horizon
Partnership") and its wholly owned sub-entities. Horizon Partnership is a
subsidiary of Horizon Group, Inc. ("Horizon"), a self-administered and
self-managed real estate investment trust. Horizon is the general partner of
Horizon Partnership and each common share of Horizon is equivalent to one unit
of Horizon Partnership. Horizon's assets, which include investments in joint
ventures, are owned by, and substantially all of its operations are conducted
through, Horizon Partnership. As of March 31, 1998, Horizon owned a 85.4%
interest in Horizon Partnership. Horizon Partnership is engaged in the
development, ownership, acquisition and operation of outlet centers.
2. Summary of Presentation
Basis of Presentation
The accompanying statement of revenue and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission. The statement is not representative of the actual
operations of Horizon Partnership for the period presented nor indicative of
future operations as certain expenses, consisting of interest expense,
depreciation, general and administrative, and certain other operating expenses
have been excluded.
A summary of unaudited expenses are as follows:
Three Months Ended
March 31, 1998
-------------
Interest expense............................... $13,566
Depreciation and amortization.................. 10,376
General and administrative..................... 2,640
Other.......................................... 3,566
-------
Total unaudited expenses.................... $30,148
=======
Revenue Recognition
Rental revenue is recognized as income in the period earned.
Use of Estimates
The preparation of the statement of revenue and certain expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenue and
expenses during the reporting periods. Actual results may differ from those
estimates.
<PAGE>
PRIME PARTNERSHIP (PRIME RETAIL, L.P.)
BASIS OF PRESENTATION TO UNAUDITED POST-TRANSACTIONS
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(UNAUDITED)
The accompanying Unaudited Post-Transactions Pro Forma Consolidated Balance
Sheet gives effect to the proposed Transactions as if the Transactions and
certain other transactions which occurred subsequent to March 31, 1998, had
occurred on March 31, 1998. The Unaudited Post-Transactions Pro Forma
Consolidated Statements of Operations gives effect to the Transactions under the
purchase method of accounting in accordance with Accounting principles Board
Opinion No. 16. In the opinion of management, all significant adjustments to
reflect the effects of the Transactions have been made.
The accompanying Unaudited Post-Transactions Pro Forma Consolidated Balance
Sheet is presented for comparative purposes only and is not necessarily
indicative of what the actual consolidated results of Prime Partnership would
have been at March 31, 1998 if the Transactions had been completed as of that
date, nor does it purport to represent the future consolidated financial
position of Prime Partnership. This Unaudited Post-Transactions Pro Forma
Consolidated Balance Sheet should be read in conjunction with, and is qualified
in its entirety by, (a) the historical financial statements and the notes
thereto of Prime Partnership included in its Quarterly Report on Form 10-Q for
the three months ended March 31, 1998; and (b) the Unaudited Pre-Transactions
Pro Forma Consolidated Statement of Operations for the three months ended March
31, 1998 of Horizon Partnership and notes thereto, included elsewhere herein.
<PAGE>
<TABLE>
Pro Forma Consolidated Balance Sheet
Prime Partnership (Prime Retail, L.P.)
As of March 31, 1998
(Unaudited)
(in thousands)
<CAPTION>
Transaction Adjustments
Pre-Transactions ---------------------------------------------------------
Horizon Prime Purchase of
Prime Partnership Transferred Finger Financings
Partnership[A] Pro Forma[B] HGP[C] Properties[D] Lakes Center[E] and Other Pro Forma
--------------- ---------------- ------- -------------- --------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Investment in rental
property, net $ 840,939 $ 940,631 $ (211,131) $ (41,693) $48,301 $ 239,235 [F] $1,775,717
(40,565)[H]
Cash and cash equivalents 126 13,960 (3,901) 26,015 (5,162) 233,514 [O] 38,295
(6,810)[G]
(172,462)[I]
(21,870)[M]
(1,715)[J]
(23,400)[F],[O]
Restricted cash 27,936 760 6,810 [G] 35,506
Accounts receivable, net 9,328 6,857 (844) (299) 134 15,176
Deferred charges, net 13,670 17,807 (5,005) (689) 252 (12,802)[K] 14,948
1,715 [J]
Due from affiliates, net 11,010 9,791 (9,791) (44) 10,966
Investment in partnerships 3,921 1,636 (322) (1,314) 3,921
Assets held for sale 1,933 (1,933)
Other assets 3,081 7,881 (1,285) (4) 153 9,826
----------- ------------ -------- --------- --------- --------- ----------
Total assets $ 910,011 $ 1,001,256 $(234,212) $(16,714) $ 42,364 $ 201,650 $1,904,355
=========== ============ ========= ========= ========= ========= ==========
Total Liabilities, Minority
Interests, Redeemable Equity
and Partners' Capital (Deficit)
Mortgages and other debt $ 525,774 $ 593,762 $(146,851) $ 41,486 $(171,730) [I] $1,143,310
233,514 [O]
46,002 [L]
21,353 [F],[N]
Accrued interest 3,884 3,793 (654) $ (108) (732) [I] 6,183
Real estate taxes payable 5,996 5,372 (876) (960) 9,532
Construction costs payable 5,958 653 (321) 6,290
Accounts payable and other
liabili1ities 11,710 15,507 (4,070) (395) 878 23,630
Distributions payable 14,942 6,802 21,744
----------- ------------ -------- --------- --------- -------- ---------
Total liabilities 568,264 625,889 (152,772) (1,463) 42,364 128,407 1,210,689
Minority interests 3,878 3,878
Commitment and contingencies [V]
Redeemable equity [W]:
Series A preferred units 59,216 59,216
Series B preferred units 77,751 118,734 [F],[R] 196,485
Series C preferred units 59,432 59,432
Common units 57,899 (57,899)[F],[Q]
----------- ------------ -------- --------- ---------- -------- ----------
Total redeemable equity 196,399 57,899 60,835 315,133
Partners' capital (deficit):
General partner 252,050 317,468 (11,789) 214,283 [F],[S] 446,498
(17,254)[M]
(276,903)[F],[T]
(31,357)[H]
Limited partners (110,580) (3,462) 56,023 [F],[P] (71,843)
(4,616)[M]
(9,208)[H]
Predecessor owners' capital (81,440) 127,442 [F],[U]
(46,002)[L]
----------- ------------ -------- --------- ----------- -------- ----------
Total partners'
capital (deficit) 141,470 317,468 (81,440) (15,251) 12,408 374,655
----------- ------------ -------- --------- ----------- -------- ----------
Total liabilities,
minority interests,
redeemable equity
and partners'
capital (deficit) $ 910,011 $ 1,001,256 $(234,212) $(16,714) $ 42,364 $ 201,650 $1,904,355
=========== ============ ========= ========== ========== ========= ==========
See accompanying Notes to Post-Transactions Pro Forma Consolidated Balance Sheet.
</TABLE>
<PAGE>
Notes to Post-Transactions Pro Forma Consolidated Balance Sheet
Prime Partnership(Prime Retail, L.P.)
As of March 31, 1998
(Unaudited)
(in thousands, except unit information)
[A] Represents Prime Partnership's historical balances at March 31, 1998.
[B] See Pre-Transactions Horizon Partnership Pro Forma Consolidated Balance
Sheet as of March 31, 1998 included elsewhere herein.
[C] Represents the historical cost of 13 factory outlet centers to be owned
and operated by HGP LP which were previously owned and operated by
Horizon Partnership.
[D] Represents the historical cost of the Prime Transferred Properties in
connection with the sale of such properties to HGP LP for $26,015 upon
consummation of the Transactions as follows:
<TABLE>
<CAPTION>
Elimination of
Historical Cost Sales Proceeds Total
--------------- -------------- ---------
<S> <C> <C> <C>
Investment in rental property, net... $(41,693) $(41,693)
Cash and cash equivalents............ $26,015 26,015
Accounts receivable, net............. (299) (299)
Deferred charges, net................ (689) (689)
Due from affiliates, net............. (44) (44)
Other assets......................... (4) (4)
--------------- -------------- ---------
Total.............................. $(42,729) $26,015 $(16,714)
=============== ============== =========
Accrued interest..................... $ (108) $ (108)
Real estate taxes payable............ (960) (960)
Accounts payable and other
liabilities......................... (395) (395)
Predecessor owners' capital.......... (41,266) $(41,266)
Partner's capital (deficit):
General partner.................... (11,789) (11,789)
Limited partners................... (3,462) (3,462)
--------------- -------------- ---------
Total liabilities and
partners' capital (deficit)...... $(42,729) $ 26,015 $(16,714)
=============== ============== =========
</TABLE>
Prime Partnership recorded a loss of $15,461 in its Consolidated
Statements of Operations upon the effective date (June 15, 1998) of the
Transactions. However, the loss on the sale of the Prime Transferred
Properties is not reflected in the Post-Transactions Pro Forma
Consolidated Statement of Operations because it is nonrecurring.
[E] Represents the purchase of the remaining 50% interest of the Finger Lakes
Center for $46,648 from Horizon Partnership's joint venture partner upon
consummation of the Transactions on June 15, 1998. The purchase was
financed though the issuance of debt (see Note [O]) of which $41,486 is
collateralized by the Finger Lakes Center.
<PAGE>
Notes to Post-Transactions Pro Forma Consolidated Balance Sheet
Prime Partnership (Prime Retail, L.P.)
As of March 31, 1998
(Unaudited)
(in thousands, except unit information)
[F] Represents adjustments to record the Transactions in accordance with the
purchase method of accounting, assuming a purchase price of $993,477,
based on the February 1, 1998 closing prices of $14.81 and $24.50 per
Prime Common Share and Prime Series B Preferred Share, respectively, as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Issuance of 14,466,329 Prime Partnership Common Units (i) .............................. $214,283
Issuance of 3,782,121 Prime Partnership Common Units based on a 0.9193
exchange ratio for 4,114,132 Horizon Partnership Common Units......................... 56,023
Issuance of 4,846,325 Prime Partnership Series B Preferred Units (i).................... 118,734
Assumption of Horizon Partnership liabilities, net of liabilities to be
distributed to HGP LP (ii)......................................................... 559,684
Adjustment to increase the assumed Horizon Partnership debt to its fair value........... 21,353
Transactions costs (iii)................................................................ 23,400
-----------
Total purchase price................................................................. 993,477
Less historical basis of net assets acquired (iv):
Rental property, net................................................................. $(729,500)
Cash and cash equivalents............................................................ (10,059)
Restricted cash...................................................................... (760)
Accounts receivable, net............................................................. (6,013)
Investment in partnerships........................................................... (1,314)
Other assets......................................................................... (6,596)
------------
Subtotal........................................................................... ( 754,242)
------------
Step-up to record fair value of rental property......................................... $239,235
============
Components of the step-up adjustment include the following:
Issuance of 14,466,329 Prime Partnership Common Units (see Note [S])........ $214,283
Elimination of HGP LP's Predecessor Owners' Capital (see Note [U]).................... 127,442
Issuance of 4,846,325 Prime Partnership Series B Preferred Units (see Note [R])....... 118,734
Issuance of 3,782,121 Prime Partnership Common Units (see Note [P])................... 56,023
Premium required to adjust assumed debt of Horizon Partnership to its estimated
fair value (see Note [N])........................................................... 21,353
Transaction costs (see Note [O])...................................................... 23,400
Elimination of Horizon Partnership's deferred charges, net of the portion
attributable to HGP LP of $5,005 (see Note [K])..................................... 12,802
Elimination of Horizon Partnership's Partners' Capital, net of the distribution
of HGP LP's net assets of $40,565 (see Note [T]).................................... (276,903)
Elimination of Horizon Partnership's Redeemable Equity (see Note [Q])................. (57,899)
-----------
Total............................................................................... $239,235
===========
</TABLE>
Notes:
(i) Based on the exchange of 0.5970 of a Prime Partnership Common Unit and
0.20 of a Prime Partnership Series B Preferred Unit for 24,231,706
Horizon Partnership Common Units.
(ii) Represents primarily long-term debt of $533,478 and other liabilities
and accrued expenses of $26,206.
<PAGE>
Notes to Post-Transactions Pro Forma Consolidated Balance Sheet
Prime Partnership (Prime Retail, L.P.)
As of March 31, 1998
(Unaudited)
(in thousands, except unit information)
(iii) The following summarizes the estimated fees and other expenses related
to the Transactions:
Employee termination costs.............................. $ 6,444
Advisory fees........................................... 9,074
Legal and accounting fees............................... 6,633
Printing, filing and other costs........................ 1,249
---------
Total................................................ $23,400
=========
(iv) Represents the Pre-Transactions Horizon Partnership Pro Forma balances
less HGP LP's historical balances per the Prime Partnership's Pro Forma
Consolidated Balance Sheet included herein:
Pre-Transactions
Horizon
Partnership
Pro Forma Less HGP LP Total
---------------- ------------- ---------
Rental property, net....... $940,631 $(211,131) $729,500
Cash and cash equivalents.. 13,960 (3,901) 10,059
Restricted cash............ 760 760
Accounts receivable, net... 6,857 (844) 6,013
Due from affiliates, net... 9,791 (9,791) -
Investment in partnerships. 1,636 (322) 1,314
Assets held for sale....... 1,933 (1,933) -
Other assets............... 7,881 (1,285) 6,596
---------------- ------------- ---------
Total.................... $983,449 $(229,207) $754,242
================ ============= =========
[G] Represents loan escrows associated with mortgage loan commitments
discussed in Note [O].
<PAGE>
Notes to Post-Transactions Pro Forma Consolidated Balance Sheet
Prime Partnership (Prime Retail, L.P.)
As of March 31, 1998
(Unaudited)
(in thousands, except unit information)
[H] Represents the distribution of net assets to HGP LP calculated as follows:
Estimated fair value of HGP LP's assets................... $151,974
Total liabilities of HGP LP............................... 111,409
---------
Purchase price allocated to HGP LP (see Note (i) below). $ 40,565
=========
The estimated fair value of HGP LP's operating properties was based upon a
direct capitalization of each property's estimated net operating income.
Property capitalization rates were based upon various factors including
property location, historical operating performance, occupancy rates and
industry information relating to sales of factory outlet centers.
Note: (i)Reflects the difference between HG LP's net assets on a
historical cost and fair value basis as follows:
Historical basis of HGP LP net assets......................... $81,440
Adjustment of HGP LP's net assets to its fair value........... (40,875)
-------
Estimated fair value of HGP LP's net assets.............. $40,565
=======
[I] Represents the payment of certain mortgage debt and related accrued
interest funded from a portion of the proceeds from the mortgage loan
commitments discussed in Note [O].
[J] Represents financing costs associated with the closing of the mortgage
loan commitments discussed in Note [O].
[K] Elimination of Horizon Partnership's deferred charges in connection with
the Transactions, net of the portion attributable to HGP LP of $5,005.
[L] To eliminate the debt allocated to HGP LP in its historical financial
statements based upon the proportionate use of debt methodology.
[M] Represents the Prime Cash Distribution which was funded from a portion of
the proceeds from the mortgage loan commitments discussed in Note [O].
[N] Premium required to adjust historical debt of Horizon Partnership to its
estimated fair value based on an effective interest rate of 6.99%. The
effective interest rate represents the prevailing rate charged by lenders
for first mortgages on similar property with similar loan terms.
[O] On June 15, 1998, Prime Partnership closed on $292,000 of loan facilities
with Nomura Asset Capital Corporation. The transaction provided (i) a
$180,000 nonrecourse permanent loan (the "Permanent Loan") and (ii) a
$112,000 full recourse bridge loan (the "Bridge Loan") of which $95,000
was funded. The Permanent Loan is (i) collateralized by first mortgages
on four factory outlet centers, (ii) bears a fixed rate of interest of
6.99%, (iii)requires monthly principal and interest payments pursuant to
an approximate 26-year amortization schedule, and (iv) matures on June
15, 2008. The Bridge Loan is (i) collateralized by first mortgages on
six factory outlet centers, (ii) bears a variable rate of interest equal
to 30-day LIBOR plus 1.35%, (iii) requires monthly interest-only
payments, and (iv) matures on June 15, 2001.
<PAGE>
Notes to Post-Transactions Pro Forma Consolidated Balance Sheet
Prime Partnership (Prime Retail, L.P.)
As of March 31, 1998
(Unaudited)
(in thousands, except unit information)
The proceeds of $275,000 from these facilities were used as follows:
Purchase of Finger Lakes Center (see Note [E])............ $ 46,648
Payment of Prime Cash Distribution (see Note [M])......... 21,870
Repayment of certain mortgage debt and related
accrued interest (see Note [I]).......................... 172,462
Financing costs (see Note [J])............................ 1,715
Loan escrows (see Note [G])............................... 6,810
Transaction costs (see Note [F]).......................... 23,400
Cash retained for general partnership expenditures........ 2,095
-----------
Total................................................... $275,000
===========
[P] Reflects the issuance of 3,782,121 Prime Partnership Common Units based
on the February 1, 1998 closing price of $14.81 per Prime Common Share as
follows (see Note [F]):
Prime Partnership Common Units issued (in thousands)...... 3,782
Multiply by market price.................................. $ 14.81
--------
Total................................................... $56,023
========
[Q] Elimination of Horizon Partnership's historical Redeemable Equity.
[R] Reflects the issuance of 4,846,325 Prime Partnership Series B Preferred
Units based on the February 1, 1998 closing price of $24.50 per Prime
Series B Preferred Share as follows (see Note [F]):
Prime Partnership Series B Preferred Units issued
(in thousands).......................................... 4,846
Multiply by market price................................. $ 24.50
Share.................................................... --------
Total................................................. $118,734
========
[S] Reflects the issuance of 14,466,329 Prime Partnership Common Units based
on the February 1, 1998 closing price of $14.81 per Prime Common Share as
follows (see Note [F]):
Prime Partnership Common Units issued (in thousands)...... 14,466
Multiply by market price.................................. $ 14.81
---------
Total.................................................. $214,283
=========
[T] Reflects the elimination of Horizon Partnership's Partners' Capital,
net of the distribution of HGP LP's net assets.
[U] Reflects the elimination of HGP LP's Predecessor Owners' Capital,
including the debt allocated to HGP LP of $46,002 (see Note [L]).
<PAGE>
Notes to Post-Transactions Pro Forma Consolidated Balance Sheet
Prime Partnership (Prime Retail, L.P.)
As of March 31, 1998
(Unaudited)
(in thousands, except unit information)
[V] Following the spin-off of HGP LP, Prime Partnership became a guarantor or
otherwise obligated with respect to approximately $41,857 of HGP LP's
indebtedness, including $12,200 of obligations under HGP LP's $108,205
three-year secured credit facility with Nomura Asset Capital Corporation.
Prime partnership and HGP LP are continuing to seek the consent of certain
parties to the assumption by HGP LP or its affiliates of $13,864
of indebtedness in connection with the spin-off.
[W] The number of units issued and outstanding on a historical and pro forma
basis for each class of equity is as follows:
<TABLE>
<CAPTION>
Historical
-------------------------------
Units Units
Issued Outstanding
------------- -----------
<S> <C> <C>
Preferred Units:
Prime Partnership Series A Preferred Units........ 2,300,000 2,300,000
Prime Partnership Series B Preferred Units........ 2,981,800 2,981,800
Prime Partnership Series C Preferred Units........ 3,636,363 3,636,363
--------- ---------
Total............................................ 8,918,163 8,918,163
========= =========
Prime Partnership Common Units..................... 35,800,423 35,800,423
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
-------------------------------
Units Units
Issued Outstanding
------------- -----------
<S> <C> <C>
Preferred Units:
Prime Partnership Series A Preferred Units........ 2,300,000 2,300,000
Prime Partnership Series B Preferred Units........ 7,828,125 7,828,125
Prime Partnership Series C Preferred Units........ 3,636,363 3,636,363
---------- ----------
Total......................................... 13,764,488 13,764,488
========== ==========
Prime Partnership Common Units.................... 54,049,873 54,049,873
========== ==========
</TABLE>
<PAGE>
PRIME PARTNERSHIP (PRIME RETAIL, L.P.)
BASIS OF PRESENTATION TO UNAUDITED POST-TRANSACTIONS
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
The accompanying Unaudited Post-Transactions Pro Forma Consolidated
Statement of Operations for the three months ended March 31, 1998 gives effect
to the Transactions and certain other transactions which occurred subsequent to
March 31, 1998, as if they had occurred January 1, 1998. The Unaudited
Post-Transactions Pro Forma Consolidated Statement of Operations gives effect to
the Transactions under the purchase method of accounting in accordance with
Accounting principles Board Opinion No. 16 with the consolidated entity (a)
qualifying as a REIT; (b) distributing at least 95% of its taxable income; and
(c) therefore, incurring no federal income tax liability for the three months
ended March 31, 1998. In the opinion of management, all significant adjustments
to reflect the effects of the Transactions have been made.
The accompanying Unaudited Post-Transactions Pro Forma Consolidated
Statement of Operations is presented for comparative purposes only and is not
necessarily indicative of what the actual consolidated results of Prime
Partnership would have been for the three months ended March 31, 1998 if the
Transactions had been completed on January 1, 1998, nor does it purport to
represent the future consolidated results of operations of Prime Partnership.
This Unaudited Post-Transactions Pro Forma Consolidated Statement of Operations
should be read in conjunction with, and is qualified in its entirety by, (a) the
historical financial statements and the notes thereto of Prime Partnership
included in its Quarterly Report on Form 10-Q for the three months ended March
31, 1998; and (b) the Unaudited Pre-Transactions Pro Forma Consolidated
Statement of Operations for the three months ended March 31, 1998 of Horizon
Partnership and notes thereto, included elsewhere herein.
<PAGE>
<TABLE>
Post-Transactions Pro Forma Consolidated Statement of Operations
Prime Partnership (Prime Retail, L.P.)
For the Three Months Ended March 31, 1998
(Unaudited)
(in thousands, except per unit information)
<CAPTION>
Transactions Adjustments
---------------------------------------------------------
Pre-Transactions Prime Purchase of
Prime Horizon Partnership Transferred Finger Lakes Financings Prime Partnership
Partnership[A] Pro Forma [B] HGP LP [C] Properties [D] Center [E] and Other Pro Forma
---------- -------------- ------- -------------- ------------- -------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Base rents $ 23,104 $ 26,396 $(5,108) $ (1,030) $ 1,451 $ 44,813
Percentage rents 865 1,140 (39) 20 1,986
Tenant reimbursements 10,743 7,203 (1,534) (554) 359 16,217
Interest and other 2,704 2,189 (428) (352) 58 4,171
-------- -------- ------- -------- ------- --------
Total revenues 37,416 36,928 (7,109) (1,936) 1,888 67,187
Expenses
Property operating 8,353 4,894 (1,383) (414) 303 11,753
Real estate taxes 2,856 3,231 (799) (212) 99 5,175
Depreciation and
amortization 7,791 9,883 (2,678) (425) 288 $ 102 [F] 14,961
General and
administrative [G] 1,423 2,640 (515) 85 3,633
Interest 8,374 13,566 (3,186) 735 (787) [H] 18,702
Other charges 582 1,470 (308) 1 1,745
-------- -------- ------- -------- ------- ----- --------
Total expenses 29,379 35,684 (8,869) (1,051) 1,511 (685) 55,969
-------- -------- ------- -------- ------- ----- --------
Income (loss) before
minority interests 8,037 1,244 1,760 (885) 377 685 11,218
Income allocated to
minority interests 47 47
------ ------- ------- --- ----- ----- --------
Income (loss) from
continuing operations 7,990 1,244 1,760 (885) 377 685 11,171
Income allocated to
preferred unitholders 4,381 2,575 [I] 6,956
Adjustment to reflect
redeemable equity at
redeption value 586 4,017 [J] 4,603
------ ------- ------ --- ----- ----- --------
Net income (loss)
applicable to common
units $ 3,023 $ 1,244 $ 1,760 $ (885) $ 377 $(5,907) $ ( 388)
======== ======= ======= ====== ====== ======= ========
Net income (loss)
applicable to common
units:
General partner $ 2,305 $ 1,061 $ (300)
Limited partners 718 183 (88)
------ ------- -------
$ 3,023 $ 1,244 $ (388)
======= ======= ========
Earnings (loss) per
common unit:
General partner $ 0.08 $ 0.04 $ (0.01)
====== ====== ======
Limited partners $ 0.08 $ 0.04 $ (0.01)
====== ====== ======
Weighted average common
units outstanding:
General partner 27,295 24,130 (9,664) [K] 41,761
Limited partners 8,505 4,164 (381) [L] 12,288
------ ------- ------ -------
35,800 28,294 (10,045) 54,049
======= ======= ======= =======
See accompanying Notes to Post-Transactions Pro Forma Consolidated Statement of Operations.
</TABLE>
<PAGE>
Notes to Post-Transactions Pro Forma Consolidated Statement of Operations
Prime Partnership (Prime Retail, L.P.)
For the Three Months Ended March 31, 1998
(Unaudited)
(in thousands)
[A] Represents Prime Partnership historical operations for the three months
ended March 31, 1998.
[B] See Pre-Transactions Horizon Partnership Pro Forma Consolidated Statement
of Operations for the three months ended March 31, 1998 included
elsewhere herein.
[C] To eliminate HGP LP's historical operations for the three months ended
March 31, 1998.
[D] To eliminate the historical operations of the Prime Transferred
Properties for the three months ended March 31, 1998. Interest expense on
the Prime Transferred Properties has not been eliminated since the debt
historically encumbering these assets was not transferred to HGP LP.
In accordance with the collateral substitution provisions of th
underlying debt agreement, Prime Partnership collateralized such
indebtedness with an unencumbered asset.
In connection with the closing of the Transactions, Prime Partnership
sold the Prime Transferred Properties to HGP LP for an aggregate
consideration of $26,015 resulting in a loss of $15,461 to Prime
Partnership. Prime Partnership recorded this loss in its Consolidated
Statements of Operations upon the effective date (June 15, 1998) of the
Transactions. However, the loss on the sale of the Prime Transferred
Properties is not reflected in the Post-Transactions Pro Forma
Consolidated Statement of Operations because it is nonrecurring.
[E] To reflect the acquisition of Horizon Partnership's joint venture
partner's 50% partnership interest in the Finger Lakes Center for
$46,648. The pro forma adjustments reflect the (i) historical
depreciation expense and depreciation expense on the step-up adjustment
allocated to rental property and (ii) interest expense on debt issued to
finance the acquisition.
A step-up adjustment to rental property results from recording the
purchase of the 50% partnership interest in the Finger Lakes Center at
its purchase price less the joint venture partner's capital balance. The
step-up adjustment was allocated 10.0% to land and 90.0% to depreciable
assets. The depreciation expense on the step-up adjustment is computed
using the straight-line method over an estimated useful life of 40 years.
The effect of a 1/8% variance in the interest rate on the debt associated
with such transaction would be approximately $13.
[F] Increase reflects the depreciation on the pro forma adjustments allocated
to depreciable rental property.
The pro forma adjustments to rental property result from recording the
Horizon Partnership real estate at its net purchase price. The pro forma
adjustments were allocated 10.0% to land and 90.0% to depreciable assets.
The depreciation expense on the pro forma adjustments is computed using
the straight-line method over an estimated useful life of 40 years.
[G] Management has forecasted on an annual basis approximately $3,950 of
certain general and administrative expenses which are anticipated to be
eliminated or reduced as a result of the Transactions. The general and
administrative cost savings have not been included in the
Post-Transactions Pro Forma Consolidated Statement of Operations. There
can be no assurance that Prime Partnership will be successful in
realizing such anticipated cost savings. The components of the
anticipated annual cost savings are as follows:
<PAGE>
Notes to Post-Transactions Pro Forma Consolidated Statement of Operations
Prime Partnership (Prime Retail, L.P.)
For the Three Months Ended March 31, 1998
(Unaudited)
(in thousands)
Salaries and related benefits..................... $2,350 (i)
Public company expenses........................... 750 (ii)
Travel and entertainment expense.................. 700 (iii)
Occupancy and other............................... 150
------
$3,950
======
Notes:
(i) Reduction is primarily attributable to the expected annual cost savings
associated with net reduction in the number of full-time Horizon
Partnership employees being retained by Prime Partnership.
(ii) The following summarizes the components of such annual reduction:
Professional fees, primarily accounting fees... $500
D&O insurance.................................. 200
Other.......................................... 50
------
$750
======
(iii) The following summarizes the components of such annual reduction:
Travel, lodging, meals and entertainment....... $400
Conventions and meetings....................... 200
Operating lease expense........................ 100
------
$700
======
[H] Decrease reflects the following:
Amortization of premium required to record Horizon
Partnership's assumed debt, net of HGP LP, at its
estimated fair value (i)........................ $(989)
Elimination of Horizon Partnership's historical
amortization of deferred financing costs,
net of HGP LP................................... (456)
Interest savings resulting from repayment of certain
mortgage debt................................... (471)
Interest expense on mortgage loan facilities closed
in connection with the consummation of
the Transactions..................................... 1,129
------
$(787)
=====
The effect of a 1/8% variance in the interest rate on the debt associated
with these Transactions would be approximately $73.
Note:
(i) The premium is being amortized over the remaining terms of the
underlying debt instruments in accordance with the effective interest
method. The underlying debt instruments have a weighted average
remaining term of approximately 6.4 years as of March 31, 1998.
[I] Reflects additional income allocated to Prime Partnership Series B
Preferred Units issued in connection with the consummation of the
Transactions at the beginning of the period presented.
[J] Represents accretion to reflect Prime Partnership Series B Preferred Units
issued in connection with consummation of the Transactions at the beginning
of the period presented at redemption value.
<PAGE>
Notes to Post-Transactions Pro Forma Consolidated Statement of Operations
Prime Partnership (Prime Retail, L.P.)
For the Three Months Ended March 31, 1998
(Unaudited)
(in thousands)
[K] Decrease reflects the following:
Elimination of Horizon's Partnership's
historical weighted average
general partnership units outstanding......................... (24,130)
Issuance of Prime Partnership common units in
connections with consummation of the Transactions............. 14,466
-------
(9,664)
=======
[L] Decrease reflects the following:
Elimination of Horizon Partnership's
historical weighted average
limited partnership units outstanding........................... (4,164)
Issuance of Prime Partnership common units in
connection with consummation of the Transactions............... 3,783
-------
(381)
=======
<PAGE>
HORIZON PARTNERSHIP
(HORIZON/GLEN OUTLET CENTERS LIMITED PARTNERSHIP)
BASIS OF PRESENTATION OF
PRE-TRANSACTIONS PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
The accompanying Unaudited Pre-Transactions Pro Forma Consolidated Balance Sheet
as of March 31, 1998 reflects the consummation of the C&C Contribution
Agreement, which occurred subsequent to March 31, 1998, as if it had occurred on
March 31, 1998.
The accompanying Unaudited Pre-Transactions Pro Forma Consolidated
Statement of Operations for the three months ended March 31, 1998 reflects the
consummation of the C&C Contribution Agreement which occurred subsequent to
March 31, 1998, as if it had occurred on January 1, 1998.
The accompanying Unaudited Pre-Transactions Pro Forma Consolidated
Financial Statements are presented for comparative purposes only and do not
purport to be indicative of the results which would have been obtained had the
transaction described above been completed on the dates indicated or which may
be obtained in the future. The Unaudited Pro Forma Consolidated Financial
Statements should be read in conjunction with the Notes to the Pre-Transactions
Consolidated Financial Statements. <PAGE> <TABLE>
Pre-Transactions Pro Forma Consolidated Balance Sheet
Horizon Partnership
(Horizon/Glen Outlet Centers Limited Partnership)
As of March 31, 1998
(Unaudited)
(in thousands)
<CAPTION>
Pre-Transactions
Horizon C&C Contribution Horizon Partnership
Partnership [A] Agreement [B] Pro Forma
---------------- ----------------------- ---------------------
<S> <C> <C> <C>
Assets
Investment in rental property, net $ 1,004,513 $ (63,882) $ 940,631
Cash and cash equivalents 13,960 13,960
Restricted cash 760 760
Accounts receivable, net 7,102 (245) 6,857
Deferred charges, net 18,250 (443) 17,807
Due from affiliates, net 9,791 9,791
Investment in partnerships 1,636 1,636
Assets held for sale 1,933 1,933
Other assets 7,899 (18) 7,881
---------------- --------------------- -------------------
Total assets $ 1,065,844 $ (64,588) $ 1,001,256
================ ===================== ===================
Liabilities, Redeemable Limited
Partners' Interests and
Partners' Capital
Mortgages and other debt $ 624,708 $ (30,946) $ 593,762
Accrued interest 3,793 3,793
Real estate taxes payable 5,372 5,372
Construction costs payable 653 653
Accounts payable and other liabilities 22,230 (6,723) 15,507
Distributions payable 6,802 6,802
---------------- -------------------- -------------------
Total liabilities 663,558 (37,669) 625,889
Redeemable limited partners'
interests 57,899 57,899
Partners' capital 344,387 (26,919) 317,468
---------------- --------------------- -------------------
Total liabilities, redeemable
limited partners'
interests and partners'
capital $ 1,065,844 $ (64,588) $ 1,001,256
================ ===================== ===================
See Notes to Pre-Transactions Pro Forma Consolidated Balance Sheet.
</TABLE>
<PAGE>
Notes to Pre-Transactions Pro Forma Consolidated Balance Sheet
Horizon Partnership
(Horizon/Glen Outlet Centers Limited Partnership)
As of March 31, 1998
(Unaudited)
(in thousands)
[A] Certain reclassifications have been made to Horizon Partnership's
historical balance sheet to conform to Prime Partnership's balance sheet
presentation.
[B] To reflect the contribution of the Lake Elsinore Center and the
contribution of the Dole Cannery Center and release of Horizon
Partnership's long-term ground lease obligations pursuant to the C&C
Contribution Agreement. In connection with the consummation of the C&C
Contribution Agreement on April 1, 1998, Horizon Partnership incurred a
loss of $26,919 which represented the net assets of such centers.
On April 1, 1998, Horizon Partnership consummated an agreement with Castle
& Cooke Properties, L.P. which released Horizon Partnership from its
forward obligations under its long-term lease of the Dole Cannery outlet
center in Honolulu, Hawaii, in connection with the formation of a joint
venture with certain affiliates of Castle & Cooke, L.P. ("Castle & Cooke")
to operate such property. Under the terms of the agreement, Castle & Cooke
Properties, L.P., the landlord of the project and an affiliate of Castle &
Cooke, released Horizon Partnership from all forward obligations under the
lease, which expires in 2045, in exchange for Horizon Partnership's
conveyance to the joint venture of its rights and obligations under such
lease. The agreement also provided that Horizon Partnership transfer to
such joint venture substantially all of Horizon Partnership's economic
interest in its outlet center in Lake Elsinore, California together with
legal title to vacant property located adjacent to the center. Horizon
Partnership holds a small minority interest in the joint venture but has no
obligation or commitment with respect to the post-closing operations of the
Dole Cannery project. However, Horizon Partnership is legally obligated for
the mortgage indebtedness outstanding which is secured by a first mortgage
on the Lake Elsinore outlet center. In addition, Castle & Cooke has
provided Horizon Partnership a guaranty, without limitation, of the
obligation under the mortgage note.
<PAGE>
<TABLE>
Pre-Transactions Pro Forma Consolidated Statement of Operations
Horizon Partnership
(Horizon/Glen Outlet Centers Limited Partnership)
For the Three Months Ended March 31, 1998
(Unaudited)
(in thousands, except per unit information)
<CAPTION>
C&C Contribution Agreement
---------------------------------------- Pre-Transactions
Horizon
Horizon Dole Cannery Lake Elsinore Partnership
Partnership [A] Center [B] Center [C] Pro Forma
------------------ ------------------ ------------------- -------------------
<S> <C> <C> <C> <C>
Revenues
Base rents $ 27,940 $ (117) $ (1,427) $ 26,396
Percentage rents 1,154 (14) 1,140
Tenant reimbursements 7,785 (73) (509) 7,203
Interest and other 2,211 (18) (4) 2,189
------------------ ------------------ ------------------- -------------------
Total revenues 39,090 (208) (1,954) 36,928
Expenses
Property operating 5,700 (434) (372) 4,894
Real estate taxes 3,509 (69) (209) 3,231
Depreciation and amortization 10,376 (493) 9,883
General and administrative 2,640 2,640
Interest 13,566 13,566
Other charges 3,566 (2,096) 1,470
------------------ ------------------ ------------------- -------------------
Total expenses 39,357 (2,599) (1,074) 35,684
------------------ ------------------ ------------------- -------------------
Income (loss) before minority interests $ (267) $ 2,391 $ (880) $ 1,244
Income (loss) allocated to minority interests (149) (149)
----------------- ----------------- ----------------- -----------------
Income (loss) from continuing operations $ (118) $ 2,391 $ (880) $ 1,393
================== ================== ================== ==================
Earnings per common unit
Basic $ - $ 0.06
================== ==================
Diluted $ - $ 0.05
================== ==================
Weighted average common units
outstanding
Basic 24,130 24,130
================== ==================
Diluted 28,294 28,294
================== ==================
See accompanying Notes to Pre-Transactions Pro Forma Consolidated Statement of Operations.
</TABLE>
<PAGE>
Notes to Pre-Transactions Pro Forma Consolidated Statement of Operations
Horizon Partnership
(Horizon/Glen Outlet Centers Limited Partnership)
As of March 31, 1998
(Unaudited)
(in thousands)
[A] Certain reclassifications have been made to Horizon Partnership's
historical statement of operations to conform to the presentation of
Prime Partnership's statement of operations.
[B] To eliminate the operations of the Dole Cannery Center resulting from (i)
Horizon Partnership's contribution of such center and (ii) the release of
Horizon Partnership from its long-term ground lease of such center,
pursuant to the C&C Contribution Agreement which was consummated on April
1, 1998.
[C] To reflect the contribution of the Lake Elsinore Center, pursuant to the
terms of the C&C Contribution Agreement, which was consummated on April 1,
1998, including the elimination of the operations of the center.
<PAGE>
PRIME RETAIL, L.P.
SIGNATURE
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.
PRIME RETAIL, L.P.
(Registrant)
Dated: August 28, 1998
---------------
By: Prime Retail, L.P.
its general partner
By: /s/ Robert P. Mulreaney
-----------------------
Name: Robert P. Mulreaney
Title: Executive Vice President,
Chief Financial Officer and
Treasurer
