SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 26, 1997
HORIZON GROUP, INC.
(Exact Name of Registrant as Specified in Charter)
MICHIGAN 1-12424 38-2559212
(State or other (Commission File Number) (IRS Employer Identification No.)
Jurisdiction of
Incorporation)
5000 HAKES DRIVE, NORTON SHORES, MICHIGAN 49441
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (616) 798-9100
NOT APPLICABLE
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
ITEM 5. OTHER EVENTS
Horizon Group, Inc. and Subsidiary (the "Company"), an
owner, operator and developer of outlet centers, announced
fourth quarter and year end results for 1996 on February
26, 1997.
Total revenues for the fourth quarter of 1996 were
$41.6 million, up from fourth quarter 1995 revenues of
$36.2 million. Base rental revenues for the fourth
quarter of 1996 totaled $27.9 million, compared to $26.7
million in the year ago period. Net loss before minority
interest, after one-time charges totaling $65.4 million,
was $62.1 million in the fourth quarter of 1996, compared
to net income before minority interest of $10.0 million in
the fourth quarter of 1995.
Total revenues for the fiscal year ended December 31,
1996 were $154.5 million versus $93.9 million for 1995.
Base rental revenues for 1996 were $110.0 million,
compared to $68.5 million a year ago. Net loss before
minority interest, after one-time charges totaling $65.4
million, was $35.0 million, or $1.34 per share in 1996
versus net income before minority interest of $28.1
million, or $1.52 per share, in 1995.
The Company's fourth quarter operating results were
adversely affected by a decline in occupancy. Occupancy
on a total gross leasable area ("GLA") basis for the
entire portfolio, was 87.9% at year end 1996.
Comparatively, occupancy at "stabilized" assets, which is
calculated by including only the leased GLA at properties
in stabilization (the basis of all previously reported
occupancy) declined from 94.8% at year end 1995 to 92.2%
at December 31, 1996. The "stabilized" portfolio at year-
end 1996 reflects all portfolio gross leasable area with
the exception of the vacant portions of the Dole Cannery
project, the Laughlin center (which opened in July 1996)
and the second phase expansions of the Bellport and Finger
Lakes centers (both of which opened in mid-November 1996)
which are completing their lease up.
As a result of the Company's fourth quarter review of
the carrying value of its long-lived assets, the Company
was required to incur write-downs totaling $61.7 million
during the fourth quarter of 1996 primarily pursuant to
FASB Statement 121 as follows:
<circle> Cost overruns and limited success in leasing
the Company's Dole Cannery project in Honolulu,
Hawaii, required a write-down of the Company's
investment in that project and a reserve against a
related receivable. Beginning in 1997, the Company
will expense and not capitalize any costs incurred
on the project including lease, interest and
operating costs. In the fourth quarter of 1996,
interest and operating expenses totaled $1.2
million (exclusive of the obligations under the
lease expiring in 2045) were capitalized and are
included in the write-down. While cash lease
payments due on the lease in 1997 are $3.2 million,
straight line lease expense accrued for financial
reporting purposes (including FFO computations)
will be $8.0 million for 1997 and a similar amount
will be required to be accrued for each remaining
year of the lease.
<circle> The Company decided to market for sale two
centers. Based upon the expected net proceeds, the
Company was required to write-down the carrying
value of such centers to their fair market value
less cost to sell.
<circle> Revised occupancy expectations indicated a
permanent impairment of value of three other
centers, therefore requiring a write-down of the
carrying value of those centers to their Fair
Market Value.
In addition, the Company's fourth quarter and year end
results reflect one time charges of $2.2 million related
to development projects which will not be pursued and a
$1.5 million provision for severance costs. These and
other adjustments reduced taxable income for 1996.
Therefore, the return of capital for 1996 reported to
shareholders in January 1997 on Form 1099 was understated
by approximately $0.22 per share. Amended 1099's for 1996
will be issued shortly.
Although current in the payment of principal and
interest, as a result of the Company's operating results
for the year ended December 31, 1996, including the $65.4
million of write-downs, the Company, as of December 31, 1996,
was not in compliance with certain financial covenants
contained in certain of its credit facilities. Each of the affected
lenders has agreed to provide waivers to the Company. The Company
currently anticipates that similar waivers may be required
for subsequent quarters unless amendments or refinancings
are obtained. While the Company has no reason to believe
such waivers will not be given and that it will not be
able to obtain refinancing with a coverage test or
amendments that will permit the Company to satisfy the new
terms on a going forward basis if required, there can be
no assurance that such waivers will be given or such
amendments or refinancing will be available on terms
acceptable to the Company. The Company is actively exploring
replacement credit facilities. Subject to the foregoing, the
Company anticipates that the cash flow from operations
together with cash from existing credit facilities will be
sufficient to meet the Company's reduced cash requirements
during 1997. One of the facilities is a $20 million bank
credit facility which expires at the end of May, 1997.
The Company intends to renew or replace this facility. As
of the date hereof, the Company has no commitment for any
such renewal or replacement and there can be no assurance
that any such renewal or replacement will be available on
terms acceptable to the Company.
Adjusted Funds From Operations ("AFFO"){1} for the
fourth quarter of 1996 was $12.3 million, or $0.45 per
share compared to $16.0 million, or $0.62 per share for
the fourth quarter of 1995. AFFO for 1996 was $57.2
million or $2.17 per share, compared to $42.6 million or
$2.30 per share, in 1995.
Funds From Operations ("FFO") were $14.1 million, or
$0.51 per share, for the fourth quarter of 1996, down from
FFO of $17.4 million, or $0.68 per share for the fourth
quarter of 1995. FFO for the year ended December 31, 1996
were $66.4 million or $2.52 per share, versus $47.7
million or $2.57 per share, in 1995.
The Company's 1995 results only include the results of
operations for the McArthur/Glen properties subsequent to
the July 1995 merger.
The Company expects FFO and AFFO for all of 1997 to be
significantly less than 1996, due in large part to the
expensing, commencing January 1, of all costs involving
the Dole Cannery project.
Horizon also announced today that its Board of
Directors has declared a quarterly dividend of $0.35 per
share of common stock for the first quarter of 1997. The
dividend will be payable April 18, 1997, to shareholders
of record on March 31, 1997. This dividend reflects a 34%
reduction from the prior quarterly dividend. The Company
will continue to review its dividends on a quarterly basis
in light of results of operations, covenants in the
Company's revolving credit facilities and other factors,
and currently does not intend to make distributions in
excess of AFFO.
The statements contained herein which are not
historical facts are forward looking statements based upon
economic forecasts, budgets, and other factors which, by
their nature, involve known risks, uncertainties and other
factors which may cause the actual results, performance or
achievements of Horizon Group, Inc. to be materially
different from any future results implied by such
statements. In particular, among the factors that could
cause actual results to differ materially are the
following: business conditions and general economy,
competitive factors, and interest rates and other risks
inherent in the real estate business. For further
information on factors which could impact the Company and
the statements contained herein, reference is made to the
Company's other filings with the Securities and Exchange
Commission.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA Financial
Information and Exhibits.
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Not applicable.
(B) PRO FORMA FINANCIAL INFORMATION
Not applicable.
(C) EXHIBITS
None.
**FOOTNOTES**
{1}The Company defines AFFO as net income before minority interest,
EXCLUDING 1) gains or losses from real estate sales or debt restructuring,
certain other one-time charges and write-downs, 2) depreciation of real
estate and 3) amortization other than the amortization of deferred
financing cost (FFO as defined by the National Association of Real Estate
Investment Trusts in March 1995), then further adjusted to, a) eliminate
the effect of straight-lined rental income and rental expense and, b)
deduct normalized capital expenditures associated with leasing, tenant
improvements and non-revenue enhancing upkeep of properties (AFFO).
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
HORIZON GROUP, INC.
(Registrant)
By:/S/ RICHARD PHILLIPS
Richard Phillips
Vice President (Principal Accounting Officer)
Dated: February 27, 1997
