<PAGE>
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended June 30, 1996
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 0-23616
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PRIME RETAIL, INC.
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(Exact name of registrant as specified in its charter)
Maryland 52-1836258
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 East Pratt Street
Nineteenth Floor
Baltimore, Maryland 21202
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(Address of principal executive offices) (Zip Code)
(410) 234-0782
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address, or former fiscal year, if
changed since last report)
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 periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
As of August 9, 1996, the issuer had outstanding 13,404,651 shares of Common
Stock, $.01 par value per share.
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PRIME RETAIL, INC.
FORM 10-Q
INDEX
PAGE
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets of Prime Retail, Inc.
as of June 30, 1996 and December 31, 1995. 1
Consolidated Statements of Operations of Prime
Retail, Inc. for the three and six months ended
June 30, 1996 and 1995. 2
Consolidated Statements of Cash Flows of Prime
Retail, Inc. for the six months ended June 30, 1996
and 1995. 3
Notes to the Consolidated Financial Statements
of Prime Retail, Inc. 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 25
ITEM 2. CHANGES IN SECURITIES 25
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 25
ITEM 5. OTHER INFORMATION 26
ITEM 6. EXHIBITS OR REPORTS ON FORM 8-K 26
SIGNATURES 27
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
PRIME RETAIL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
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JUNE 30, 1996 DECEMBER 31, 1995
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<S> <C> <C>
ASSETS:
Investment in rental property:
Land $ 35,370 $ 35,370
Buildings and improvements 406,992 403,542
Property under development 36,588 12,165
Furniture and equipment 3,662 3,403
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482,612 454,480
Accumulated depreciation (48,272) (40,190)
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434,340 414,290
Cash and cash equivalents 4,040 14,927
Restricted cash 2,310 2,230
Accounts receivable, net 6,588 8,751
Deferred charges, net 8,620 18,136
Due from affiliates, net 1,298 1,194
Investment in partnerships 2,822 2,258
Other assets 774 619
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Total assets $460,792 $462,405
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LIABILITIES AND SHAREHOLDERS' EQUITY:
Bonds payable $ 32,900 $ 32,900
Notes payable 285,877 273,054
Accrued interest 3,156 3,034
Real estate taxes payable 3,260 3,142
Construction costs payable 9,829 5,796
Accounts payable and other liabilities 14,654 8,539
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Total liabilities 349,676 326,465
Minority interests 430 14,456
Shareholders' equity:
Shares of preferred stock, 24,315,000
shares authorized: 2,300,000 shares of
10.5% Series A Senior Cumulative
Preferred Stock, $0.01 par value
(liquidation preference of $57,500),
issued and outstanding 23 23
8.5% Series B Cumulative Participating
Convertible Preferred Stock, $0.01 par
value (liquidation preference of $70,150
and $175,375, respectively), 2,806,000
and 7,015,000 shares issued and
outstanding, respectively 28 70
Shares of common stock, 75,000,000
shares authorized: Common stock, $0.01
par value, 9,609,323 and 2,875,000 shares
issued and outstanding, respectively 96 29
Additional paid-in capital 126,453 128,275
Distributions in excess of net income (15,914) (6,913)
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Total shareholders' equity 110,686 121,484
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Total liabilities and shareholders'
equity $460,792 $462,405
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</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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PRIME RETAIL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
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THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
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1996 1995 1996 1995
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<S> <C> <C> <C> <C>
REVENUES:
Base rents $12,786 $10,956 $25,530 $21,628
Percentage rents 368 327 811 728
Tenant reimbursements 5,895 5,548 12,034 10,421
Income from investment partnerships 168 657 609 787
Interest and other 933 1,302 2,297 2,500
------- ------- ------- -------
Total revenues 20,150 18,790 41,281 36,064
EXPENSES:
Property operating 4,796 4,044 9,415 7,814
Real estate taxes 1,012 1,545 2,485 2,779
Depreciation and amortization 4,612 3,739 8,999 7,344
Corporate general and administrative 966 692 1,859 1,536
Interest 6,148 5,022 12,204 9,478
Other charges 6,566 685 7,212 908
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Total expenses 24,100 15,727 42,174 29,859
------- ------- ------- -------
INCOME (LOSS) BEFORE MINORITY INTERESTS AND
EXTRAORDINARY ITEM (3,950) 3,063 (893) 6,205
Loss allocated to minority interests 1,731 1,395 3,208 2,861
------- ------- ------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (2,219) 4,458 2,315 9,066
Extraordinary item -- loss on early
extinguishment of debt, net of
minority interests in the amount of $3,263 (1,017) -- (1,017) --
------- ------- ------- -------
NET INCOME (LOSS) (3,236) 4,458 1,298 9,066
Income allocated to preferred shareholders 3,000 5,236 8,236 10,472
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NET LOSS APPLICABLE TO COMMON SHARES $(6,236) $ (778) $(6,938) $(1,406)
------- ------- ------- -------
------- ------- ------- -------
PER COMMON SHARE:
Loss before extraordinary item $ (1.65) $ (0.27) $ (1.96) $ (0.49)
Extraordinary item (0.32) -- (0.34) --
------- ------- ------- -------
Net loss $ (1.97) $ (0.27) $ (2.30) $ (0.49)
------- ------- ------- -------
------- ------- ------- -------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,171 2,875 3,023 2,875
------- ------- ------- -------
------- ------- ------- -------
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</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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<PAGE>
PRIME RETAIL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
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SIX MONTHS ENDED JUNE 30
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1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,298 $ 9,066
Adjustments to reconcile net income to
net cash provided by operating activities:
Loss allocated to minority interests (3,208) (2,861)
Extraordinary loss for early retirement of debt 1,017 --
Write-off of financing costs 6,131 --
Depreciation and amortization 8,999 7,344
Amortization of deferred financing costs and
interest rate protection contracts 2,249 2,206
Equity earnings in excess of cash distributions from
joint ventures 79 (602)
Provision for uncollectible accounts receivable 281 67
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 1,882 (60)
Increase in due from affiliates, net (104) (1,328)
Increase in other assets (863) (698)
Increase in accrued interest 122 829
Increase in accounts payable and other liabilities 1,702 2,926
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Net cash provided by operating activities 19,585 16,889
INVESTING ACTIVITIES:
Purchase of land -- (3,076)
Purchase of buildings and improvements (3,704) (26,427)
Increase in property under development (20,235) (7,289)
Deferred leasing commissions (21) (265)
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Cash used in investing activities (23,960) (37,057)
FINANCING ACTIVITIES:
Proceeds from notes payable 14,700 89,225
Principal repayments on notes payable (1,877) (52,798)
Deferred financing fees (2,873) (1,679)
Distributions and dividends paid (12,170) (12,168)
Distributions to minority interests (4,292) (2,364)
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Net cash (used in) provided by financing activities (6,512) 20,216
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Increase (decrease) in cash and cash equivalents (10,887) 48
Cash and cash equivalents at beginning of period 14,927 2,959
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Cash and cash equivalents at end of period $ 4,040 $ 3,007
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</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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PRIME RETAIL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND UNIT INFORMATION)
NOTE 1 -- INTERIM FINANCIAL PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. In the opinion of
management, all adjustments consisting only of recurring accruals considered
necessary for a fair presentation have been included. Operating results for
such interim periods are not necessarily indicative of the results which may be
expected for a full fiscal year. For further information, refer to the
consolidated financial statements and footnotes included in Prime Retail's (the
"Company") annual report on Form 10-K/A-1 for the year ended December 31, 1995.
Unless the context requires otherwise, all references to the Company herein mean
Prime Retail, Inc. and those entities owned or controlled by Prime Retail, Inc.,
including Prime Retail, L.P. (the "Operating Partnership"). The consolidated
financial statements include the accounts of the Company, the Operating
Partnership and the partnerships in which the Company has majority interest or
control. Profits and losses are allocated in accordance with the terms of the
agreement of limited partnership of the Operating Partnership. Investments in
partnerships in which the Company does not have operational control or a
majority interest are accounted for under the equity method of accounting.
Income (loss) applicable to minority interests and common shares as presented in
the consolidated statements of operations is allocated based on income (loss)
before minority interests after income allocated to preferred shareholders.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Significant intercompany accounts and transactions have been
eliminated in consolidation. Certain financial statement amounts and related
footnote information have been reclassified to conform with the current
presentation. These reclassifications have not changed previously reported
results or shareholders' equity.
NOTE 2 -- EXCHANGE OFFER AND SECONDARY COMMON STOCK OFFERING
On June 27, 1996, the Company completed a registered exchange offer (the
"Exchange Offer") to exchange shares of its Common Stock for up to 4,209,000
shares, or 60%, of its outstanding 8.5% Series B Cumulative Participating
Convertible Preferred Stock (the "Convertible Preferred Stock"). The Company
received tender offers for 4,648,650 shares, or approximately 66.27%, of the
Convertible Preferred Stock. A proration factor was applied to each share of
Convertible Preferred Stock validly tendered by holders, and on June 27, 1996,
the Company issued 6,734,323 shares of its Common Stock. In connection with the
Exchange Offer, certain affiliates of the Company who are limited partners of
the Operating Partnership (the "Limited Partners") contributed to the Operating
Partnership 625,000 common units for cancellation.
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NOTE 2 -- EXCHANGE OFFER AND SECONDARY COMMON STOCK OFFERING (CONTINUED)
On June 26, 1996, the Company's board of directors approved a special cash
distribution (the "Special Cash Distribution") on its Common Stock of $1,393, or
$0.145 per common share, to holders of record on June 27, 1996. The Special
Cash Distribution was paid on July 15, 1996. The Limited Partners were not
entitled to receive and did not receive any portion of the Special Cash
Distribution.
On July 3, 1996, the Company completed a secondary offering of its Common Stock
to the public by issuing 3,795,328 shares at $11.375 per share (the "Common
Stock Offering"). Of the total offering, 3,705,000 shares were sold by the
Company and 90,328 shares were sold by a selling stockholder. The Company
received net proceeds from the Common Stock Offering of $38,928 that were used
to repay outstanding indebtedness.
A summary of the holders of the Series A preferred units, Series B convertible
preferred units and common units after giving effect to the Exchange Offer and
Common Stock Offering follows:
<TABLE>
<CAPTION>
NUMBER OF UNITS
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HOLDER SERIES A SERIES B COMMON
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<S> <C> <C> <C>
Prime Retail, Inc. 2,300,000 2,806,000 13,404,651
The Prime Group, Inc. ("PGI") and management(1) -- -- 8,505,472
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2,300,000 2,806,000 21,910,123
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</TABLE>
NOTE:
(1) Includes 742,180 units beneficially owned by management and 4,091,255 units
beneficially owned by certain executive officers based on their ownership
interests in PGI.
NOTE 3 -- INVESTMENT IN PARTNERSHIPS
On May 6, 1996, the Company and the Company's joint venture partner (together
with its affiliates, the "Grove City Partner") entered into a purchase agreement
(the "Grove City Purchase Agreement") pursuant to which the Company has agreed,
subject to certain conditions, to purchase on or before February 28, 1997 all of
the Grove City Partner's ownership interest in Grove City Factory Shops
Partnership, the property partnership which owns Grove City Factory Shops.
Following the completion of such transaction, the Company will own 100% of Grove
City Factory Shops Partnership. As consideration for the Grove City Partner's
partnership interest, the Company has agreed, at closing, to pay $8,000 in cash
to the Grove City Partner and to repay all of the then outstanding indebtedness
secured by Grove City Factory Shops, which indebtedness is owed to the Grove
City Partner by the Grove City Factory Shops Partnership.
Under the Grove City Purchase Agreement, if the Company breaches any material
representation, warranty, covenant or agreement or if the Company defaults under
the Grove City Purchase Agreement, the Company is obligated to pay liquidated
damages to the Grove City Partner in the amount of $2,000. In the event the
Grove City Purchase Agreement is terminated for any reason other than by reason
of the Grove City Partner's default thereunder or a condemnation of or casualty
to this property, the Grove City Partner will be entitled to the first $8,000 of
the proceeds of any subsequent sale of the property (after payment of
outstanding indebtedness and return of capital contributions with respect to
Phase IV). The Company will be entitled to receive the next $8,000 of such
proceeds and the balance of such proceeds, if any, will be distributed pro rata
between the Company and the Grove City Partner based on their respective
ownership interests in the Grove City Factory Shops Partnership. No assurance
can be given that conditions to the Grove City Purchase
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<PAGE>
NOTE 3 -- INVESTMENT IN PARTNERSHIPS (CONTINUED)
Agreement will be met or that such purchase will be completed. Specifically,
because the Company has not yet secured commitments to finance such transaction,
management does not currently believe that the consummation of the Grove City
Purchase Agreement is currently probable.
NOTE 4 -- BONDS AND NOTES PAYABLE
On January 30, 1996, the Company obtained from a commercial mortgage company a
commitment for a mortgage loan in the amount of $7,000 for an eight-year term
(the "Refinancing Loan"). The Refinancing Loan bears interest at a fixed rate
of 9.375%, requires monthly principal and interest payments based on a 16-year
amortization schedule, matures on March 1, 2004 and is collateralized by
property in Lombard, IL. The Company closed on the Refinancing Loan on August
1, 1996 and received net proceeds of $6,807 that were used for working capital
purposes.
On June 5, 1996, the Company entered into a binding loan commitment (the "1996
Nomura Loan Commitment") with Nomura Asset Capital Corporation ("Nomura") which
provides for, among other things, (i) a variable-rate seven-year
cross-collateralized first mortgage loan (the "First Mortgage Loan") in the
principal amount of $226,500 and (ii) a variable-rate seven-year
cross-collateralized second mortgage loan (the "Mezzanine Mortgage Loan") in the
principal amount of $33,500. The First Mortgage Loan will bear a variable-rate
of interest equal to the London Interbank offered rate for thirty (30) day
deposits in U.S. dollars ("30-day LIBOR") plus 1.31%. The Mezzanine Mortgage
Loan bears a variable-rate of interest equal to 30-day LIBOR plus 3.25%. The
First Mortgage Loan and the Mezzanine Mortgage Loan are expected to be advanced
and securitized by Nomura on or before September 30, 1996 (the "Securitization
Closing Date"). After the Securitization Closing Date, the First Mortgage Loan
will require monthly payments of principal and interest based on a thirty-year
amortization of principal and the Mezzanine Mortgage Loan will require monthly
payments of principal and interest based on the full amortization of principal
within seven years. The First Mortgage Loan and the Mezzanine Mortgage Loan
will be cross-collateralized by senior and junior mortgages, respectively,
encumbering thirteen of the Company's existing factory outlet centers.
On August 1, 1996, the Company closed on the refinancing of the existing credit
facilities with Nomura (the "Amended Credit Facilities"). The Amended Credit
Facilities provided an aggregate of $253,000 of financing to the Company on the
same economic terms as those of the First Mortgage Loan and the Mezzanine
Mortgage Loan that were applicable under the 1996 Nomura Loan Commitment for the
period prior to the Securitization Closing Date. The Amended Credit Facilities
were utilized (i) to refinance $151,323 which was outstanding under the existing
credit facilities, (ii) to refinance $97,411 which was outstanding under a
securitized mortgage loan, (iii) to pay loan fees and transaction costs of
$3,600, and (iv) for working capital purposes. Under the terms of the
refinancing, the Amended Credit Facilities consist of two notes, one in the
amount of $218,000 and the other in the amount of $35,000. Each note requires
monthly payments of interest-only at a rate equal to 30-day LIBOR plus 1.513%.
The Amended Credit Facilities are required to be repaid in full in connection
with the closing of the First Mortgage Loan and the Mezzanine Mortgage Loan. If
the First Mortgage Loan and the Mezzanine Mortgage Loan are not advanced by
September 30, 1996, the interest rate on the Amended Credit Facilities will
increase to a rate equal to 30-day LIBOR plus 1.717%.
In connection with the commitment to provide the First Mortgage Loan and the
Mezzanine Mortgage Loan, the Company and Nomura have agreed that, subject to
certain conditions, the Company and Nomura will share the risks or rewards, as
the case may be, with regard to the securitization of the First Mortgage Loan.
If the actual interest rate spread over 30-day LIBOR deviates from 1.24% for
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<PAGE>
NOTE 4 -- BONDS AND NOTES PAYABLE (CONTINUED)
the Senior Certificates (as defined below), the appropriate party will make a
payment to the other based on the present value of such deviation applied
against the principal balance of the Senior Certificates. If the Securitization
Closing Date does not occur by February 1, 1997, Nomura may demand payment of
the Amended Credit Facilities in full six months after delivery of such demand
notice. It is anticipated that the First Mortgage Loan will be securitized at
investment grade levels through the issuance of Real Estate Mortgage Investment
Company ("REMIC") certificates (the "Senior Certificates") and the Mezzanine
Mortgage Loan will be securitized through the issuance of REMIC certificates or
another acceptable securitization vehicle (the "Junior Certificates"). After
securitization, the Company will be required to purchase interest rate
protection contracts for the seven-year term of such loans and for the principal
amount of the Senior Certificates. In addition, prior to the securitization,
the Company is required to purchase interest rate protection contracts with
regard to the Amended Credit Facilities when and if 30-day LIBOR exceeds 6.50%.
At August 8, 1996, 30-day LIBOR was 5.44%. It is estimated that the proceeds
from the sale of the Senior Certificates and the Junior Certificates and the
proceeds from the cash flow loan (described below) will approximate $260,000. In
the event that loan proceeds available from the Senior Certificates and the
Junior Certificates are less than $260,000, Nomura has agreed to provide,
subject to certain conditions (including the consent of the applicable rating
agencies), a loan based on the cash flow of the property partnerships which own
the thirteen factory outlet centers in the principal amount of the difference
between $260,000 and such loan proceeds. In the event that the net cash flow
from the thirteen outlet centers is less than a mutually agreed upon amount and
the securitization results in proceeds of less than the amount required to repay
the Amended Credit Facilities and to pay all other costs and expenses due in
connection with the closing of the First Mortgage Loan and the Mezzanine
Mortgage Loan, the Company will be required to fund such difference at the
closing of the securitization. The Company intends to purchase the Junior
Certificates with the proceeds of a financing provided through a Nomura
repurchase agreement (the "Repo Financing"). The Repo Financing will require
monthly payments of interest-only and will be for a term of two years and will
be recourse to the Operating Partnership. The Repo Financing will be subject to
daily mark-to-market and margin calls. Interest will be payable for 75% of the
market value of the Junior Certificates (which at date of inception shall be par
value) at the rate of 30-day LIBOR plus 1.95% and for the balance of the market
value of the Junior Certificates (which at date of inception shall be par value)
at the rate of 30-day LIBOR plus 7.0%. The weighted average annual interest
rate (including the estimated annual amortization of interest rate protection
contracts) on the $260,000 of securitized loans based on a seven-year term of
such loans is initially expected to be approximately 7.66%.
Under the terms of the 1996 Nomura Loan Commitment, the Company and the lender
can agree to elect a five-year term with respect to the Senior Certificates at
an interest rate spread of 1.10% over 30-day LIBOR. If the five-year term
option is completed at the time of securitization, the weighted average annual
interest rate (including the estimated annual amortization of interest rate
protection contracts) on the $260,000 of securitized loans is initially expected
to be approximately 7.46%.
The Company will account for the payment/receipt with respect to the sharing of
the risks and rewards associated with the interest rate spread on the Senior
Certificates as a deferred asset/liability. The deferred asset/liability will
be amortized as a component of interest expense as an adjustment to the cost of
the borrowings over the term of the Senior Certificates.
Upon terms acceptable to the Company and the rating agencies involved in the
securitization, an amount between $25,000 to $50,000 in addition to the $260,000
of securitized loans may be raised by the securitization and, if so, will be
held in escrow by Nomura. These funds may be drawn upon by
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<PAGE>
NOTE 4 -- BONDS AND NOTES PAYABLE (CONTINUED)
the Company, subject to the satisfaction of certain objective standards
acceptable to the Company and such rating agencies, after completion of
construction of, and opening for business in, expansions at the thirteen
mortgaged outlet centers.
The Company's existing $160,000 loan (the "Revolving Loan") with Nomura will not
be terminated as a result of the transactions contemplated by the 1996 Nomura
Loan Commitment, however, the collateral that was pledged thereunder will be
released and pledged to Nomura under the First Mortgage Loan and the Mezzanine
Mortgage Loan. The Revolving Loan will be available, subject to sufficient
collateral being pledged to Nomura, for acquisitions, expansions and new outlet
centers.
In connection with the execution of the binding 1996 Nomura Loan Commitment, the
Company incurred a nonrecurring charge and extraordinary loss of $6,131 and
$4,280, respectively, during the three months ended June 30, 1996. The
nonrecurring loss results from (i) the termination of previously obtained
financing commitments from Nomura for which the Company paid $3,250 in
nonrefundable financing fees, (ii) the unamortized cost of certain interest rate
protection contracts of $3,696 and (iii) other nonrefundable deferred financing
costs of $1,425, less the estimated fair market value of the interest rate
protection contracts of $2,240 based on their fair market value at May 31, 1996.
The extraordinary loss results from (i) the write-off of unamortized deferred
financing costs of $3,458 relating to the early extinguishment of debt and (ii)
debt prepayment penalties of $822.
On July 8, 1996, the Company obtained from a financial institution a commitment
for a construction mortgage loan in an amount not to exceed the lesser of
$20,000 or sixty-five percent (65%) of the appraised value of the underlying
collateral (as defined) (the "Construction Mortgage Loan"). The Construction
Mortgage Loan will (i) bear a variable interest rate at the financial
institution's prime rate or, at the Company's option, a LIBOR index, (ii) mature
two years after closing on the Construction Mortgage Loan and, (iii) require
monthly interest-only payments. The Construction Mortgage Loan will be
collateralized by a factory outlet center under construction in Gaffney, South
Carolina. The Construction Mortgage Loan will be subject to certain leasing and
cash contribution restrictions prior to the disbursement of loan proceeds. No
loan proceeds have been disbursed as of August 8, 1996.
NOTE 5 -- LEGAL PROCEEDINGS
In the ordinary course of business, the Company is subject to certain legal
actions. While any litigation contains an element of uncertainty, management
believes that losses, if any, resulting from such matters will not have a
material adverse effect on the consolidated financial statements of the Company.
The Company was a defendant in a lawsuit filed on June 14, 1995 in the U.S.
District Court for the Northern District of West Virginia whereby the plaintiffs
alleged that the Company breached a confidentiality agreement entered into by
the Predecessor and the plaintiffs in connection with the proposed purchase
during 1993 of a factory outlet center in Martinsburg, West Virginia. On July
26, 1996, the U.S. District Court for the Northern District of West Virginia,
after the plaintiffs completed the presentation of their case, issued a
judgement in favor of the Company as a matter of law on all claims.
NOTE 6 -- CASH DISTRIBUTIONS
On August 7, 1996, the Company's board of directors approved a cash distribution
of $1,861, or $0.219 per common unit, to the limited partners of the Operating
Partnership. The cash distribution will be paid on August 15, 1996.
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE, UNIT INFORMATION AND GLA)
INTRODUCTION
The following discussion and analysis of the consolidated financial condition
and results of operations of Prime Retail, Inc. (the "Company") should be read
in conjunction with the Consolidated Financial Statements and Notes thereto.
Historical results and percentage relationships set forth herein are not
necessarily indicative of future operations.
CAUTIONARY STATEMENTS
The following discussion in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 which
reflect management's current views with respect to future events and financial
performance. Such forward-looking statements are subject to certain risks and
uncertainties; including, but not limited to, the effects of future events on
the Company's financial performance; the risk that the Company may be unable to
finance its planned development activities; risks related to the retail industry
in which the Company's factory outlet centers compete, including the potential
adverse impact of external factors, such as inflation, consumer confidence,
unemployment rates and consumer tastes and preferences; risks associated with
the Company's property development activities, such as the potential for cost
overruns, delays and the lack of predictability with respect to the financial
returns associated with these development activities; the risk of potential
increase in market interest rates from current levels; and risks associated with
real estate ownership, such as the potential adverse impact of changes in local
economic climate on the revenues and the value of the Company's properties.
RESULTS OF OPERATIONS
GENERAL
The Company has grown by developing and acquiring factory outlet centers and
expanding its existing factory outlet centers. As summarized in TABLE 1, the
Company's factory outlet portfolio consisted of seventeen operating factory
outlet centers totaling 4,331,000 square feet of gross leasable area ("GLA") at
June 30, 1996, compared to fourteen factory outlet centers totaling 3,382,000
square feet of GLA at June 30, 1995. The Company opened three new factory outlet
centers and four expansions of existing factory outlet centers during the third
and fourth quarters of 1995, adding 949,000 square feet of GLA in the aggregate.
The significant increase in the number of operating properties and total GLA at
June 30, 1996 compared to the portfolio of properties at June 30, 1995, is
collectively referred to as the "Portfolio Expansion".
-9-
<PAGE>
<TABLE>
<CAPTION>
TABLE 1 -- PORTFOLIO OF PROPERTIES AS OF JUNE 30, 1996
- -------------------------------------------------------------------------------------------------
OWNERSHIP GRAND GLA PERCENTAGE
FACTORY OUTLET CENTER PHASE INTEREST(1) OPENING DATE (SQ. FT.) LEASED(9)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Warehouse Row Factory Shops(2)(3)-- I 99% November 1989 95,000 89%
Chattanooga, Tennessee II 65% August 1993 26,000 94
-------- ----
121,000 90
San Marcos Factory Shops-- I 100% August 1990 177,000 99
San Marcos, Texas II August 1991 67,000 98
III August 1993 117,000 100
IIIB November 1994 20,000 91
IIIC November 1995 35,000 100
-------- ----
416,000 99
Gulf Coast Factory Shops-- I 100% October 1991 187,000 100
Ellenton, Florida II August 1993 123,000 100
-------- ----
310,000 100
Triangle Factory Shops-- I 100% October 1991 181,000 100
Raleigh-Durham, North Carolina
Coral Isle Factory Shops-- I 100% December 1991 94,000 98
Naples/Marco Island, Florida II December 1992 32,000 98
-------- ----
126,000 98
Castle Rock Factory Shops-- I 100% November 1992 181,000 100
Castle Rock, Colorado II August 1993 94,000 99
III November 1993 95,000 100
-------- ----
370,000 100
Ohio Factory Shops-- I 100% July 1993 186,000 99
Jeffersonville, Ohio II November 1993 100,000 98
IIB November 1994 13,000 100
-------- ----
299,000 99
Gainesville Factory Shops-- I 100% August 1993 210,000 96
Gainesville, Texas II November 1994 106,000 92
-------- ----
316,000 95
Nebraska Crossing Factory Shops-- I 100% October 1993 192,000 96
Gretna, Nebraska
Oxnard Factory Outlet(4)-- I 30% June 1994 148,000 96
Oxnard, California
Grove City Factory Shops(5)-- I 50% August 1994 235,000 100
Grove City, Pennsylvania II November 1994 95,000 100
III November 1995 85,000 100
-------- ----
415,000 100
Huntley Factory Shops-- I 100% August 1994 192,000 98
Huntley, Illinois II November 1995 90,000 57
-------- ----
282,000 85
Florida Keys Factory Shops-- I 100% September 1994 208,000 94
Florida City, Florida
Indiana Factory Shops-- I 100% November 1994 208,000 89
Daleville, Indiana
</TABLE>
-10-
<PAGE>
TABLE 1 -- PORTFOLIO OF PROPERTIES AS OF JUNE 30, 1996 (CONTINUED)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
OWNERSHIP GRAND GLA PERCENTAGE
FACTORY OUTLET CENTER PHASE INTEREST(1) OPENING DATE (SQ. FT.) LEASED(9)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Magnolia Bluff Factory Shops(6)-- I 100% July 1995 238,000 91%
Darien, Georgia IIA November 1995 56,000 88
-------- ----
294,000 90
Arizona Factory Shops(7)-- I 50% September 1995 217,000 93
Phoenix, Arizona
Gulfport Factory Shops(8)-- I 100% November 1995 228,000 92
Gulfport, Mississippi -------- ----
TOTAL FACTORY OUTLET CENTERS(10) 4,331,000 96%
-------- ----
-------- ----
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
(1) This percentage represents the Company's ownership interest in the property
partnership that directly owns or leases the property indicated.
(2) The Company owns a 2% partnership interest as the sole general partner in
Phase I of this property but is entitled to 99% of the property's operating
cash flow and net proceeds from a sale or refinancing. With regard to
Phase II, Ford Motor Credit Company holds a 35% limited partnership
interest and the Company holds a 65% general partnership interest in the
partnership that owns Phase II of this property.
(3) Phase I of this mixed-use development includes 154,000 square feet of
office space and Phase II includes 5,000 square feet of office space. The
total office space of 159,000 square feet of GLA is not included in this
table and such space was 100% leased as of June 30, 1996.
(4) The Company owns 30% of this factory outlet center in a joint venture
partnership with unrelated third parties.
(5) The Company owns 50% of this factory outlet center in a joint venture
partnership with an unrelated third party. The Company has entered into an
agreement dated May 6, 1996 with its joint venture partner to purchase all
of the joint venture partner's ownership interest in the general
partnership that owns this property on or before February 28, 1997.
Following the completion of such purchase, the Company will own 100% of
this property. No assurance can be given that this transaction will be
consummated as scheduled.
(6) The property partnership operates this property pursuant to a long-term
lease under which the property partnership receives the economic benefit of
a 100% ownership interest.
(7) The Company owns 50% of this factory outlet center in a joint venture
partnership with an unrelated third party.
(8) The real property on which this outlet center is located is subject to a
long-term ground lease. The property partnership receives the economic
benefit of a 100% ownership interest.
(9) Fully executed leases as of June 30, 1996 as a percent of square feet of
GLA.
(10)The Company also owns three community centers containing 424,000 square
feet of GLA in the aggregate that were 97% leased as of June 30, 1996.
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1996 TO THE THREE MONTHS ENDED
JUNE 30, 1995
SUMMARY
For the three months ended June 30, 1996, the Company reported a net loss of
$3,236 on total revenues of $20,150. These results include a nonrecurring
charge and extraordinary loss of $6,131 and $1,017 (net of minority interests in
the amount of $3,263), respectively, related to a binding loan commitment that
the Company obtained on June 5, 1996. For the three months ended June 30, 1996,
the net loss applicable to common shareholders was $6,236 or $1.97 per common
share.
For the three months ended June 30, 1995, the Company reported net income of
$4,458 on total revenues of $18,790. For the same period, the net loss
applicable to common shareholders was $778, or $0.27 per common share.
-11-
<PAGE>
REVENUES
Total revenues were $20,150 for the three months ended June 30, 1996, as
compared to $18,790 for the three months ended June 30, 1995, an increase of
$1,360, or 7.2%. Base rents increased $1,830, or 16.7%, in 1996 compared to
1995. These increases are primarily due to the Portfolio Expansion.
Straight-line rents (included in base rents) were $99 and $205 for the three
months ended June 30, 1996 and 1995, respectively.
Tenant reimbursements, which represent the contractual recovery from tenants of
certain operating expenses, increased by $347, or 6.3%, during the three months
ended June 30, 1996 over the same period in 1995. These increases are primarily
due to the Portfolio Expansion. Tenant reimbursements as a percentage of
recoverable operating expenses, which include property operating expenses and
real estate taxes, increased to 101.5% from 99.3% during the three months ended
June 30, 1996 and 1995, respectively. This positive trend reflects the
Company's continued efforts to contain operating expenses at its properties
while requiring merchants to pay their pro rata share of these expenses.
Income from investment partnerships decreased by $489 for the three months ended
June 30, 1996 over the same period in 1995. The decrease is primarily due to a
gain of approximately $288 on the sale of land and improvements by a joint
venture partnership during the 1995 period. Interest and other income decreased
by $369, or 28.3%, to $933 during the three months ended June 30, 1996 as
compared to $1,302 for the three months ended June 30, 1995. The decrease is
attributable to lower leasing commissions, construction management fees, real
estate brokerage commissions and ancillary income of $278, $41, $138 and $11,
respectively, offset by an increase in development fees of $99.
EXPENSES
Property operating expenses increased by $752, or 18.6%, to $4,796 for the three
months ended June 30, 1996 compared to $4,044 for the same period in 1995. Real
estate taxes decreased by $533, or 34.5%, to $1,012 for the three months ended
June 30, 1996, from $1,545 in the same period for 1995. The increase in
property operating expenses is primarily due to the Portfolio Expansion. The
decrease in real estate taxes is primarily attributable to lowered tax
assessments for certain properties. As shown in TABLE 2, depreciation and
amortization expense increased by $873, or 23.3%, to $4,612 for the three months
ended June 30, 1996, compared to $3,739 for 1995. This increase results from
the depreciation and amortization of assets associated with the Portfolio
Expansion.
-12-
<PAGE>
TABLE 2 -- COMPONENTS OF DEPRECIATION AND AMORTIZATION EXPENSE
The components of depreciation and amortization expense are summarized as
follows:
- --------------------------------------------------------------------------------
THREE MONTHS
ENDED JUNE 30
----------------
1996 1995
- --------------------------------------------------------------------------------
Building and improvements $2,226 $2,010
Land improvements 474 312
Tenant improvements 1,248 822
Furniture and fixtures 160 115
Leasing commissions(1) 504 480
------ ------
Total $4,612 $3,739
------ ------
------ ------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE:
(1) In accordance with generally accepted accounting principles ("GAAP"),
leasing commissions are classified as intangible assets. Therefore, the
amortization of leasing commissions is reported as a component of
depreciation and amortization expense.
TABLE 3 -- COMPONENTS OF INTEREST EXPENSE
The components of interest expense are summarized as follows:
- --------------------------------------------------------------------------------
THREE MONTHS
ENDED JUNE 30
----------------
1996 1995
- --------------------------------------------------------------------------------
Interest incurred $5,753 $4,723
Interest capitalized (705) (634)
Interest earned on interest rate protection contracts (38) (205)
Amortization of deferred financing costs 819 819
Amortization of interest rate protection contracts 319 319
------ ------
Total $6,148 $5,022
------ ------
------ ------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As shown in TABLE 3, interest expense for the three months ended June 30, 1996,
increased by $1,126, or 22.4%, to $6,148 compared to $5,022 for the same period
in 1995. This increase is primarily the result of an increase of $68,325 in
total debt outstanding at June 30, 1996 compared to total debt outstanding at
June 30, 1995. The effect of the increase in total debt outstanding was offset
by a decrease of 0.37% in the weighted average interest rate for the three
months ended June 30, 1996 compared to the same period in 1995. The weighted
average interest rate for bonds and notes payable at June 30, 1996 and 1995 was
7.29% and 7.70%, respectively. Also effecting the increase is a decrease in
interest earned from interest rate protection contracts of $167 and an increase
in the amount of interest capitalized in connection with new development
projects of $71.
During the second quarter of 1996, the Company recorded a nonrecurring loss of
$10,411 related to a binding loan commitment that the Company obtained on June
5, 1996 in connection with refinancing approximately $253,000 of debt. See
Liquidity and Capital Resources -- Sources and Uses of Cash -- The Nomura Loans
for additional information relating to the binding loan commitment and the
components of this nonrecurring loss. Approximately $6,131 of the nonrecurring
loss is included in other charges in the Consolidated Statements of Operations.
As a result, other charges increased by $5,881 to $6,566 for the three months
ended June 30, 1996 compared to $685 for the same period in 1995.
-13-
<PAGE>
Excluding the nonrecurring charge, other charges decreased by $250, or 36.5%, to
$435. This decrease reflects a lower provision for potentially unsuccessful
pre-development efforts of $165 and a decrease in marketing costs of $155 offset
by a higher provision for uncollectible accounts receivable of $47 and other
miscellaneous charges of $23.
In connection with re-leasing space to new merchants, the Company incurred $121
in capital expenditures during the three months ended June 30, 1996. The
Company did not incur any such capital expenditures during the three months
ended June 30, 1995.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 TO THE SIX MONTHS ENDED JUNE
30, 1995
SUMMARY
For the six months ended June 30, 1996, the Company reported net income of
$1,298 on total revenues of $41,281. These results include a nonrecurring
charge and an extraordinary loss of $6,131 and $1,017 (net of minority interests
in the amount of $3,263), respectively, related to a binding loan commitment
that the Company obtained on June 5, 1996. For the six months ended June 30,
1996, the net loss applicable to common shareholders was $6,938 or $2.30 per
common share.
For the six months ended June 30, 1995, the Company reported net income of
$9,066 on total revenues of $36,064. For the same period, the net loss
applicable to common shareholders was $1,406, or $0.49 per common share.
REVENUES
Total revenues were $41,281 for the six months ended June 30, 1996, as compared
to $36,064 for the six months ended June 30, 1995, an increase of $5,217, or
14.5%. Base rents increased $3,902, or 18.0%, in 1996 compared to 1995. These
increases are primarily due to the Portfolio Expansion. Straight-line rents
(included in base rents) were $237 and $387 for the six months ended June 30,
1996 and 1995, respectively.
Tenant reimbursements, which represent the contractual recovery from tenants of
certain operating expenses, increased by $1,613, or 15.5%, during the six months
ended June 30, 1996 over the same period in 1995. These increases are primarily
due to the Portfolio Expansion. Tenant reimbursements as a percentage of
recoverable operating expenses, which include property operating expenses and
real estate taxes, increased to 101.1% from 98.4% during the six months ended
June 30, 1996 and 1995, respectively. This positive trend reflects the
Company's continued efforts to contain operating expenses at its properties
while requiring merchants to pay their pro rata share of these expenses.
Income from investment partnerships decreased by $178 for the six months ended
June 30, 1996 over the same period in 1995. The decrease is primarily due to a
gain on the sale of land and improvements of $288 by a joint venture partnership
during the 1995 period. Interest and other income decreased by $203, or 8.1%,
to $2,297 during the six months ended June 30, 1996 as compared to $2,500 for
the six months ended June 30, 1995. This decrease is attributable to lower
leasing commissions of $629, construction management fees of $75, real estate
brokerage commissions of $152, offset by higher lease termination income,
property management fees, development fees, coupon program income and ancillary
income of $363, $108, $94, $55 and $33, respectively.
-14-
<PAGE>
EXPENSES
Property operating expenses increased by $1,601, or 20.5%, to $9,415 for the six
months ended June 30, 1996 compared to $7,814 for the same period in 1995. Real
estate taxes decreased by $294, or 10.6%, to $2,485 for the six months ended
June 30, 1996, from $2,779 in the same period for 1995. The increase in
property operating expenses is primarily due to the Portfolio Expansion. The
decrease in real estate taxes is primarily attributable to lower tax assessments
for certain properties. As shown in TABLE 4, depreciation and amortization
expense increased by $1,655, or 22.5%, to $8,999 for the six months ended June
30, 1996, compared to $7,344 for 1995. This increase results from the
depreciation and amortization of assets associated with the Portfolio Expansion.
TABLE 4 -- COMPONENTS OF DEPRECIATION AND AMORTIZATION EXPENSE
The components of depreciation and amortization expense are summarized as
follows:
- --------------------------------------------------------------------------------
SIX MONTHS
ENDED JUNE 30
-----------------
1996 1995
- --------------------------------------------------------------------------------
Building and improvements $4,455 $3,928
Land improvements 953 647
Tenant improvements 2,354 1,655
Furniture and fixtures 315 223
Leasing commissions(1) 922 891
------ ------
Total $8,999 $7,344
------ ------
------ ------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE:
(1) In accordance with generally accepted accounting principles ("GAAP"),
leasing commissions are classified as intangible assets. Therefore, the
amortization of leasing commissions is reported as a component of
depreciation and amortization expense.
TABLE 5 -- COMPONENTS OF INTEREST EXPENSE
The components of interest expense are summarized as follows:
- --------------------------------------------------------------------------------
SIX MONTHS
ENDED JUNE 30
------------------
1996 1995
- --------------------------------------------------------------------------------
Interest incurred $11,394 $8,935
Interest capitalized (1,318) (1,215)
Interest earned on interest rate protection contracts (122) (448)
Amortization of deferred financing costs 1,612 1,568
Amortization of interest rate protection contracts 638 638
------- ------
Total $12,204 $9,478
------- ------
------- ------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As shown in TABLE 5, interest expense for the six months ended June 30, 1996,
increased by $2,726, or 28.8%, to $12,204 compared to $9,478 for the same period
in 1995. This increase is primarily the result of an increase of $68,325 in
total debt outstanding at June 30, 1996 compared to total debt outstanding at
June 30, 1995. The effect of the increase in total debt outstanding was offset
by a decrease of 0.23% in the weighted average interest rate the six months
ended June 30, 1996 compared to the same period in 1995. The weighted average
interest rate for bonds and notes payable at June 30, 1996 and 1995 was 7.29%
and 7.70%, respectively. Also effecting the increase is a
-15-
<PAGE>
decrease in interest earned from interest rate protection contracts of $326 and
an increase in the amount of interest capitalized in connection with new
development projects of $148.
During the second quarter of 1996, the Company recorded a nonrecurring loss of
$10,411 related to a binding loan commitment that the Company obtained on June
5, 1996 in connection with refinancing approximately $253,000 of debt. See
Liquidity and Capital Resources -- Sources and Uses of Cash -- The Nomura Loans
for additional information relating to the binding loan commitment and the
components of this nonrecurring loss. Approximately $6,131 of the nonrecurring
loss is included in other charges in the Consolidated Statements of Operations.
As a result, other charges increased by $6,304 to $7,212 for the six months
ended June 30, 1996 compared to $908 for the same period in 1995.
Excluding the nonrecurring charge, other charges increased by $173, or 19.1%, to
$1,081. This increase reflects a higher provision for uncollectible accounts
receivable of $213, increased ground lease expense of $132, a lower provision
for potentially unsuccessful pre-development efforts of $50, and decreased
marketing costs and miscellaneous other charges of $62 and $60, respectively.
In connection with re-leasing space to new merchants, the Company incurred $140
and $162 in capital expenditures during the six months ended June 30, 1996 and
1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES AND USES OF CASH -- GENERAL
For the six months ended June 30, 1996, net cash provided by operating
activities was $19,585. Cash used in investing activities was $23,960 for the
six months ended June 30, 1996. The primary use of these funds was for costs
associated with the development and construction of two new factory outlet
centers and expansions of existing factory outlet centers scheduled to open
during the remainder of 1996, costs associated with the completion of two
factory outlet centers and three expansions opened during 1995 and costs for
pre-development activities associated with future developments. Net cash used
in financing activities was $6,512 for the six months ended June 30, 1996. The
principal uses of these funds were the payment of certain deferred financing
costs of $2,873, principal repayments on notes payable of $1,877, distributions
to minority interests (including distributions to the limited partner unit
holders) of $4,292 and preferred and common stock distributions of $12,170
offset by new borrowings of $14,700.
Pursuant to the terms and conditions of an exchange offer (the "Exchange Offer")
which expired by its terms on June 24, 1996, 4,209,000 shares of the Company's
8.5% Series B Cumulative Participating Convertible Preferred Stock ("Convertible
Preferred Stock") were exchanged on June 27, 1996 for 6,734,323 shares of the
Company's Common Stock, a basis of 1.6 shares of Common Stock for each share of
Convertible Preferred Stock validly tendered and accepted. As a condition to
the Exchange Offer, the Company declared a special one-time cash distribution on
June 27, 1996 of $0.145 on each of the 9,609,323 shares of Common Stock
outstanding after consummation of the Exchange Offer. This special one-time
cash distribution totaling $1,393 was paid on July 15, 1996.
Pursuant to the terms and conditions of a secondary stock offering (the "Common
Stock Offering") for 3,795,328 shares of the Company's Common Stock as set forth
in a Prospectus dated June 28, 1996, the Company and Kilico Realty Corporation
sold 3,705,000 and 90,328 shares, respectively, of the Company's Common Stock
for $11.375 per share on July 3, 1996. The Company's net proceeds
-16-
<PAGE>
from the Common Stock Offering of $38,928 were primarily used to repay certain
outstanding indebtedness.
Effective December 31, 1995, the Company's $16,000 fixed rate mortgage loan that
was scheduled to mature on that date was modified to extend the maturity date to
July 31, 1996 at a fixed rate of interest of 8.00%. On January 30, 1996, the
Company obtained from a commercial mortgage company a commitment for a mortgage
loan in an amount not to exceed $7,000 for an eight-year term (the "Refinancing
Loan"). On July 3, 1996, the Company repaid the $16,000 fixed rate mortgage
loan by using a portion of the net proceeds from the Common Stock Offering. The
Company closed on the Refinancing Loan on August 1, 1996 and received net
proceeds of $6,807 that was used for working capital purposes. The Refinancing
Loan bears a fixed interest rate at 9.375%, matures on March 1, 2004 and
requires monthly principal and interest payments based on a 16-year amortization
schedule.
On May 7, 1996, the Corporate Line was renewed and increased to $15,000. The
purpose of the Corporate Line is to provide working capital to facilitate the
funding of short-term operating cash needs of the Company. The Corporate Line
bears interest at the London Interbank offered rate for thirty (30) day deposits
in U.S. dollars ("30-day LIBOR") plus 2.50% and matures on July 11, 1997. The
principal balance outstanding under the Corporate Line at June 30, 1996 was
$13,200 and the interest rate was 8.03%. On July 3, 1996, the Company repaid
the outstanding borrowings under the Corporate Line using a portion of the net
proceeds from the Common Stock Offering.
On July 8, 1996, the Company obtained from a financial institution a commitment
for a construction mortgage loan in an amount not to exceed the lesser of
$20,000 or sixty-five percent (65%) of the appraised value of the underlying
collateral (as defined) (the "Construction Mortgage Loan"). The Construction
Mortgage Loan will (i) bear a variable interest rate at the financial
institution's prime rate or, at the Company's option, a LIBOR index, (ii) mature
two years after closing on the Construction Mortgage Loan and (iii) require
monthly interest-only payments. The Construction Mortgage Loan will be
collateralized by property under construction in Gaffney, South Carolina. The
Construction Mortgage Loan will be subject to certain leasing and cash
contribution restrictions prior to the disbursement of loan proceeds. No loan
proceeds have been disbursed as of August 8, 1996.
SOURCES AND USES OF CASH -- THE NOMURA LOANS
On March 2, 1995, the Company closed on a $160,000 revolving loan (the
"Revolving Loan") with Nomura Capital Asset Corporation ("Nomura"). Prior to
its amendment on August 1, 1996, the Revolving Loan bore interest at 30-day
LIBOR plus 2.25%, required monthly interest-only payments and matured on
December 31, 1996. The Company could extend the maturity of the Revolving Loan
for a period of one year subject to its satisfaction of certain financial loan
covenants. The Revolving Loan was guaranteed by the Operating Partnership and
seven property partnerships, and was cross-collateralized by first mortgages on
seven factory outlet centers and certain related assets. The Revolving Loan
prohibited additional collateralized indebtedness on these properties and
required compliance with certain monetary and non-monetary covenants. The
Revolving Loan agreement contained certain covenants regarding the payment of
distributions and dividends if at any date the debt service coverage ratio, as
defined, fell below a minimum threshold. As of June 30, 1996, the Company was
in compliance with monetary, non-monetary and debt service coverage covenants.
The principal balance outstanding under the Revolving Loan at June 30, 1996 was
$145,478 and the interest rate was 7.69%.
The amount available to be drawn by the Company under the Revolving Loan at any
time during the term of the facility was calculated based upon the net cash flow
from the collateral, as defined. The
-17-
<PAGE>
collateral pool of the Revolving Loan could be expanded, subject to lender
approval, by adding properties, including properties under development, that
satisfy certain criteria relating to, among other things, the level of executed
leases and the amount of projected net cash flow. At June 30, 1996, the
Revolving Loan was fully drawn based on executed leases and projected net cash
flow of the collateral, as defined. On July 3, 1996, the Company repaid $4,155
of the outstanding borrowings under the Revolving Loan using a portion of the
net proceeds from the Common Stock Offering.
On December 18, 1995, the Company obtained from Nomura a commitment for a
ten-year $233,000 first mortgage loan and a commitment for a five-year $22,500
term loan (the "1995 Nomura Loan Commitments"). On December 18, 1995, the
Company also obtained from Nomura a $35,000 interim loan (the "Interim Loan")
collateralized by second mortgages on two existing factory outlet centers.
Prior to its amendment on August 1, 1996, the Interim Loan bore interest at
30-day LIBOR plus 2.25%, was to mature on July 31, 1996, and required monthly
interest-only payments prior to maturity.
On June 5, 1996, the Company entered into a binding loan commitment (the "1996
Nomura Loan Commitment") with Nomura Asset Capital Corporation ("Nomura") which
provides for, among other things, (i) a variable-rate seven-year
cross-collateralized first mortgage loan (the "First Mortgage Loan") in the
principal amount of $226,500 and (ii) a variable-rate seven-year
cross-collateralized second mortgage loan (the "Mezzanine Mortgage Loan") in the
principal amount of $33,500. The First Mortgage Loan will bear a variable-rate
of interest equal to 30-day LIBOR plus 1.31%. The Mezzanine Mortgage Loan bears
a variable-rate of interest equal to 30-day LIBOR plus 3.25%. The First
Mortgage Loan and the Mezzanine Mortgage Loan are expected to be advanced and
securitized by Nomura on or before September 30, 1996 (the "Securitization
Closing Date"). After the Securitization Closing Date, the First Mortgage Loan
will require monthly payments of principal and interest based on a thirty-year
amortization of principal and the Mezzanine Mortgage Loan will require monthly
payments of principal and interest based on the full amortization of principal
within seven years. The First Mortgage Loan and the Mezzanine Mortgage Loan
will be cross-collateralized by senior and junior mortgages, respectively,
encumbering thirteen of the Company's existing factory outlet centers.
On August 1, 1996, the Company closed on the refinancing of the existing credit
facilities with Nomura (the "Amended Credit Facilities"). The Amended Credit
Facilities provided an aggregate of $253,000 of financing to the Company on the
same economic terms as those of the First Mortgage Loan and the Mezzanine
Mortgage Loan that were applicable under the 1996 Nomura Loan Commitment for the
period prior to the Securitization Closing Date. The Amended Credit Facilities
were utilized (i) to refinance $151,323 which was outstanding under the existing
credit facilities, (ii) to refinance $97,411 which was outstanding under a
securitized mortgage loan, (iii) to pay loan fees and transaction costs of
$3,600, and (iv) for working capital purposes. Under the terms of the
refinancing, the Amended Credit Facilities consist of two notes, one in the
amount of $218,000 and the other in the amount of $35,000. Each note requires
monthly payments of interest-only at a rate equal to 30-day LIBOR plus 1.513%.
The Amended Credit Facilities are required to be repaid in full in connection
with the closing of the First Mortgage Loan and the Mezzanine Mortgage Loan. If
the First Mortgage Loan and the Mezzanine Mortgage Loan are not advanced by
September 30, 1996, the interest rate on the Amended Credit Facilities will
increase to a rate equal to 30-day LIBOR plus 1.717%.
In connection with the commitment to provide the First Mortgage Loan and the
Mezzanine Mortgage Loan, the Company and Nomura have agreed that, subject to
certain conditions, the Company and Nomura will share the risks or rewards, as
the case may be, with regard to the securitization of the
-18-
<PAGE>
First Mortgage Loan. If the actual interest rate spread over 30-day LIBOR
deviates from 1.24% for the Senior Certificates (as defined below), the
appropriate party will make a payment to the other based on the present value of
such deviation applied against the principal balance of the Senior Certificates.
If the Securitization Closing Date does not occur by February 1, 1997, Nomura
may demand payment of the Amended Credit Facilities in full six months after
delivery of such demand notice. It is anticipated that the First Mortgage Loan
will be securitized at investment grade levels through the issuance of Real
Estate Mortgage Investment Company ("REMIC") certificates (the "Senior
Certificates") and the Mezzanine Mortgage Loan will be securitized through the
issuance of REMIC certificates or another acceptable securitization vehicle (the
"Junior Certificates"). After securitization, the Company will be required to
purchase interest rate protection contracts for the seven-year term of such
loans and for the principal amount of the Senior Certificates. In addition,
prior to the securitization, the Company is required to purchase interest rate
protection contracts with regard to the Amended Credit Facilities when and if
30-day LIBOR exceeds 6.50%. At August 8, 1996, 30-day LIBOR was 5.44%. It is
estimated that the proceeds from the sale of the Senior Certificates and the
Junior Certificates and the proceeds from the cash flow loan (described below)
will approximate $260,000. In the event that loan proceeds available from the
Senior Certificates and the Junior Certificates are less than $260,000, Nomura
has agreed to provide, subject to certain conditions (including the consent of
the applicable rating agencies), a loan based on the cash flow of the Property
Partnerships which own the thirteen factory outlet centers in the principal
amount of the difference between $260,000 and such loan proceeds. In the event
that the net cash flow from the thirteen outlet centers is less than a mutually
agreed upon amount and the securitization results in proceeds of less than the
amount required to repay the Amended Credit Facilities and to pay all other
costs and expenses due in connection with the closing of the First Mortgage Loan
and the Mezzanine Mortgage Loan, the Company will be required to fund such
difference at the closing of the securitization. The Company intends to
purchase the Junior Certificates with the proceeds of a financing provided
through a Nomura repurchase agreement (the "Repo Financing"). The Repo
Financing will require monthly payments of interest-only and will be for a term
of two years and will be recourse to the Operating Partnership. The Repo
Financing will be subject to daily mark-to-market and margin calls. Interest
will be payable for 75% of the market value of the Junior Certificates (which at
date of inception shall be par value) at the rate of 30-day LIBOR plus 1.95% and
for the balance of the market value of the Junior Certificates (which at date of
inception shall be par value) at the rate of 30-day LIBOR plus 7.0%. The
weighted average annual interest rate (including the estimated annual
amortization of interest rate protection contracts) on the $260,000 of
securitized loans based on a seven-year term of such loans is initially expected
to be approximately 7.66%.
Under the terms of the 1996 Nomura Loan Commitment, the Company and the lender
can agree to elect a five-year term with respect to the Senior Certificates at
an interest rate spread of 1.10% over 30-day LIBOR. If the five-year term
option is completed at the time of securitization, the weighted average annual
interest rate (including the estimated annual amortization of interest rate
protection contracts) on the $260,000 of securitized loans is initially expected
to be approximately 7.46%.
Upon terms acceptable to the Company and the rating agencies involved in the
securitization, an amount between $25,000 to $50,000 in addition to the $260,000
of securitized loans may be raised by the securitization and, if so, will be
held in escrow by Nomura. These funds may be drawn upon by the Company, subject
to the satisfaction of certain objective standards acceptable to the Company and
such rating agencies, after completion of construction of, and opening for
business in, expansions at the thirteen mortgaged outlet centers.
The Company's existing Revolving Loan with Nomura will not be terminated as a
result of the transactions contemplated by the 1996 Nomura Loan Commitment,
however, the collateral that was
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<PAGE>
pledged thereunder will be released and pledged to Nomura under the First
Mortgage Loan and the Mezzanine Mortgage Loan. The Revolving Loan will be
available, subject to sufficient collateral being pledged to Nomura, for
acquisitions, expansions and new outlet centers.
In connection with the execution of the binding 1996 Nomura Loan Commitment, the
Company incurred a nonrecurring charge and extraordinary loss of $6,131 and
$4,280, respectively, during the three months ended June 30, 1996. The
nonrecurring loss results from (i) the termination of previously obtained
financing commitments from Nomura for which the Company paid $3,250 in
nonrefundable financing fees, (ii) the unamortized cost of certain interest rate
protection contracts of $3,696 and (iii) other nonrefundable deferred financing
costs of $1,425, less the estimated fair market value of the interest rate
protection contracts of $2,240 based on their fair market value at May 31, 1996.
The extraordinary loss results from (i) the write-off of unamortized deferred
financing costs of $3,458 relating to the early extinguishment of debt and (ii)
debt prepayment penalties of $822.
SOURCES AND USES OF CASH -- THE GROVE CITY PURCHASE AGREEMENT
On May 6, 1996, the Company and the Company's joint venture partner (together
with its affiliates, the "Grove City Partner") entered into a purchase agreement
(the "Grove City Purchase Agreement") pursuant to which the Company has agreed,
subject to certain conditions, to purchase on or before February 28, 1997 all of
the Grove City Partner's ownership interest in Grove City Factory Shops
Partnership, the Property Partnership which owns the Grove City Factory Shops.
Following the completion of such transaction, the Company will own 100% of Grove
City Factory Shops Partnership. As consideration for the Grove City Partner's
partnership interest, the Company has agreed, at closing, to pay $8,000 in cash
to the Grove City Partner and to repay all of the then outstanding indebtedness
secured by Grove City Factory Shops, which indebtedness is owed to the Grove
City Partner by the Grove City Factory Shops Partnership.
The Grove City Purchase Agreement also provides for the Grove City Partner and
the Company to finance, develop and construct a fourth phase of the center which
will contain approximately 118,000 square feet of GLA. Under the Grove City
Purchase Agreement, an affiliate of the Grove City Partner will make a
construction loan to the Company in the aggregate principal amount of $11,000
for the construction of Phase IV. Construction of Phase IV commenced in May
1996 and is expected to be completed during the fourth quarter of 1996 at an
expected cost of completion of $13,500. The Company is obligated to fund any
construction costs in excess of $11,000. No assurance can be given that this
expansion will be completed on schedule, with the indicated GLA, or that the
total estimated construction cost will not be exceeded.
Under the Grove City Purchase Agreement, if the Company breaches any material
representation, warranty, covenant or agreement or if the Company defaults under
the Grove City Purchase Agreement, the Company is obligated to pay liquidated
damages to the Grove City Partner in the amount of $2,000. In the event the
Grove City Purchase Agreement is terminated for any reason other than by reason
of the Grove City Partner's default thereunder or a condemnation of or casualty
to this property, the Grove City Partner will be entitled to the first $8,000 of
the proceeds of any subsequent sale of the property (after payment of
outstanding indebtedness and return of capital contributions with respect to
Phase IV). The Company will be entitled to receive the next $8,000 of such
proceeds and the balance of such proceeds, if any, will be distributed pro rata
between the Company and the Grove City Partner based on their respective
ownership interests in the Grove City Factory Shops Partnership. No assurance
can be given that conditions to the Grove City Purchase Agreement will be met or
that such purchase will be completed. Specifically, because the Company has not
yet secured commitments to finance such transaction, management does not
currently believe the consummation of the Grove City Purchase Agreement is
probable.
-20-
<PAGE>
PLANNED DEVELOPMENT
Management believes that there is sufficient demand for continued development of
new factory outlet centers and expansions of certain existing factory outlet
centers. The Company expects to open approximately 829,000 square feet of GLA
during 1996. Of this amount, approximately 440,000 square feet relates to the
development of two new factory outlet centers and the balance relates to planned
expansions of existing factory outlet centers. At June 30, 1996, the estimated
aggregate remaining capital expenditures for the new factory outlet centers and
expansions expected to open in 1996 approximated $71,800. The estimated
aggregate remaining capital expenditures for new factory outlet centers and
expansions opened during the year ended December 31, 1995 (aggregating 949,000
square feet of GLA) approximated $3,400.
TABLE 6 - FACTORY OUTLET CENTERS AND EXPANSIONS UNDER CONSTRUCTION(1)
TABLE 6 summarizes the projected opening dates and total GLA of the factory
outlet centers and expansions of existing centers under construction as of June
30, 1996. The total estimated construction cost for such projects is
approximately $92,800.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
PROJECTED 1996
PROJECT LOCATION PHASE OPENING DATE GLA
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Buckeye Factory Shops Medina County, OH I November 205,000
Carolina Factory Shops Gaffney, SC I November 235,000
-------
Total New Centers under
Construction 440,000
Grove City Factory Shops Grove City, PA IV November 118,000
Arizona Factory Shops Phoenix, AZ IIA September 94,000
Gulfport Factory Shops Gulfport, MS IIA November 40,000
Ohio Factory Shops Jeffersonville, OH IIIA September 35,000
Gulf Coast Factory Shops Ellenton, FL III October 30,000
Indiana Factory Shops Daleville, IN IIA October 26,000
Magnolia Bluff Factory Shops Darien, GA IIB November 21,000
Arizona Factory Shops Phoenix, AZ IIB September 19,000
Triangle Factory Shops Raleigh-Durham, NC IIA July 19, 1996 6,000
-------
Total Expansions under
Construction 389,000
-------
Total New Centers and
Expansions under Construction 829,000
-------
-------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
NOTE:
(1) No assurance can be given that these factory outlet centers will be opened
on schedule with the indicated GLA. Additionally, no assurance can be
given that the estimated construction costs will not be exceeded.
Management believes that the Company has sufficient capital and capital
commitments to fund the remaining development costs associated with the 1995
openings and the openings planned for 1996. These funding requirements are
expected to be met, in large part, with the proceeds of the loan facilities
under the 1996 Nomura Loan Commitment, the Corporate Line, the Common Stock
Offering, joint venture partners and the formation of a joint venture
partnership with an unrelated third party associated with Buckeye Factory Shops.
There can be no assurance that the Company will be successful in consummating
the securitization transactions contemplated by the 1996 Nomura Loan Commitment
or consummating a joint venture partnership to construct Buckeye Factory Shops.
If
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<PAGE>
adequate financing for such development and expansion is not available, the
Company may not be able to develop new centers or expand existing centers at
currently planned levels.
With regard to planned new factory outlet centers and expansions scheduled to
open in 1997, which are expected to contain approximately 750,000 square feet of
GLA in the aggregate, at a total development cost of approximately $82,500, the
Company expects to fund approximately 37% of these new projects through new
joint ventures with an unrelated third party. The Company expects to fund the
development cost for the balance of its new 1997 projects from: (a)
approximately 70% to 75% of cost from proceeds available on line of credit
facilities, and (b) the balance of cost (25% to 30%) from a variety of potential
sources, including excess proceeds from securitized loan transactions, retained
cash flow from operations, and the potential sale of common or preferred equity
in the public or private capital markets. As of June 30, 1996, there were no
material commitments with regard to the 1997 planned development activity.
DEBT REPAYMENTS AND PREFERRED STOCK DIVIDENDS
The Company's aggregate indebtedness was $318,777 and $305,954 at June 30, 1996
and December 31, 1995, respectively. At June 30, 1996, such indebtedness had a
weighted average maturity of 3.4 years and bore interest at a weighted average
interest rate of 7.29% per annum. At June 30, 1996, $24,971, or 7.8%, of such
indebtedness bore interest at fixed rates and $293,806, or 92.2%, of such
indebtedness, including $28,250 of tax-exempt bonds, bore interest at
variable-rates.
At June 30, 1996, the Company held interest rate protection contracts on $28,250
of floating rate tax-exempt indebtedness and $96,878 of other floating rate
indebtedness (or approximately 42.6% of its total floating rate indebtedness).
These contracts expire in 1999 and 2000, respectively. In addition, the Company
held additional interest rate protection contracts on $43,900 of the $96,878
floating rate indebtedness to further reduce the Company's exposure to increases
in interest rates.
The Company's ratio of debt to total market capitalization (defined as total
long term debt divided by the sum of: (a) the aggregate market value of the
outstanding shares of Common Stock; (b) the aggregate market value of the
outstanding shares of Convertible Preferred Stock; (c) the aggregate liquidation
preference of the Senior Preferred Stock at $25.00 per share; and (d) the total
long-term debt of the Company) was 50.5% at June 30, 1996.
At August 9, 1996, the Company is obligated to repay $81 of mortgage
indebtedness during the remainder of 1996 and $253,797 during the year ending
December 31, 1997. The Company may extend for one year the term of its
Revolving Loan which is currently scheduled to expire on December 31, 1996.
Annualized cumulative dividends on the Company's Senior Preferred Stock and
Convertible Preferred Stock are $6,037 and $5,963, respectively. These
dividends are payable quarterly, in arrears.
The Company anticipates that cash flow from operations, together with cash
available from borrowings and other sources will be sufficient to satisfy its
debt service obligations, expected dividend requirements and operating cash
needs for the next year.
ECONOMIC CONDITIONS
Substantially all of the merchants' leases contain provisions that somewhat
mitigate the impact of inflation. Such provisions include clauses providing for
increases in base rent and clauses enabling the Company to receive percentage
rentals based on merchants' gross sales. Substantially all leases require
merchants to pay their proportionate share of all operating expenses, including
common area maintenance, real estate taxes and promotion, thereby reducing the
Company's exposure to increased costs and operating expenses resulting from
inflation. At June 30, 1996, the Company maintained
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<PAGE>
interest rate protection contracts to protect against increases in interest
rates on certain floating rate indebtedness (see "Debt Repayments and Preferred
Stock Dividends").
The Company intends to reduce operating and leasing risks by managing its
existing portfolio of properties with the goal of improving its tenant mix,
rental rates and lease terms and attracting high fashion, upscale manufacturers
and national brand-name manufacturers as merchants.
FUNDS FROM OPERATIONS
Management believes that to facilitate a clear understanding of the Company's
operating results, Funds from Operations ("FFO") should be considered in
conjunction with net income (loss) presented in accordance with GAAP. FFO is
defined as net income (loss) (determined in accordance with GAAP) excluding
gains (or losses) from debt restructuring and sales of property, plus
depreciation and amortization after adjustments for unconsolidated partnerships
and joint ventures.
The Company generally considers FFO an appropriate measure of performance of an
equity real estate investment trust. Historical FFO may or may not be
indicative of future FFO. FFO does not represent cash generated from operating
activities in accordance with GAAP (which, unlike FFO, generally reflects all
cash effects of transactions and other events that enter into the determination
of net income), is not necessarily indicative of cash flow available to fund
cash needs and should not be considered an alternative to net income or other
GAAP measures as an indication of the Company's performance or an alternative to
cash flow as a measure of liquidity or the ability to service debt or pay
dividends.
The Company cautions that the calculation of FFO may vary from entity to entity
and as such the presentation of FFO by the Company may not be comparable to
other similarly titled measures of other reporting companies.
In March 1995, the National Association of Real Estate Investment Trusts
established guidelines clarifying the definition of FFO (as modified, the "New
Definition"). The Company now reports both the old definition and the New
Definition. For the Company, the primary impact of adopting the New Definition
is a reduction in FFO since the amortization of capitalized debt costs and
depreciation of non-real estate assets are not added back to income before
minority interests and extraordinary item. TABLE 7 provides a reconciliation of
income before minority interests and extraordinary item to FFO, under both the
old definition and the New Definition, for the three and six months ended June
30, 1996 and 1995. FFO (New Definition) decreased $5,670, or 85.6%, to $951 for
the three months ended June 30, 1996 from $6,621 for the three months ended June
30, 1995. This decrease is primarily attributable to the nonrecurring charge of
$6,131 in connection with the binding 1996 Nomura Loan Commitment offset by the
Portfolio Expansion.
-23-
<PAGE>
TABLE 7 -- FUNDS FROM OPERATIONS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
----------------------------------- -------------------------------------
1996 1995 1996 1995 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
(OLD DEFINITION) (NEW DEFINITION) (OLD DEFINITION) (NEW DEFINITION)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income before minority interests and
extraordinary item $(3,950) $3,063 $(3,950) $3,063 $ (893) $ 6,205 $ (893) $ 6,205
FFO ADJUSTMENTS:
Depreciation and amortization 4,612 3,739 4,420 3,611 8,999 7,344 8,619 7,098
Amortization of deferred financing costs
and interest rate protection contracts 1,138 1,138 -- -- 2,249 2,206 -- --
Unconsolidated joint venture
adjustments(1) 482 (53) 481 (53) 842 165 840 165
------- ------ ------- ------ ------ ------- ------- -------
FFO before allocations to minority
interests and preferred shareholders $ 2,282 $7,887 $ 951 $6,621 $11,197 $15,920 $ 8,566 $13,468
------- ------ ------- ------ ------ ------- ------- -------
------- ------ ------- ------ ------ ------- ------- -------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE:
(1) Includes net preferential partner distributions received from a joint
venture partnership of $81 and $162 for the three and six months ended June
30, 1995, respectively .
-24-
<PAGE>
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
At the Company's Annual Shareholders Meeting held on May 29, 1996
(the "Annual Meeting"), the nominees for director proposed by the
Company were elected. The votes cast for these nominees were as
set forth below:
For Withheld
--------- ----------
Abraham Rosenthal 2,173,252 5,900
Governor James R. Thompson 2,173,252 5,900
Marvin S. Traub 2,173,252 5,900
At the Annual Meeting, the proposal to approve an amendment to
the Company's Charter to provide that a holder may acquire or
beneficially own shares of Series B Preferred Stock if, as a
result of such acquisition or beneficial ownership, such holder
does not own shares of capital stock (including all classes) of
the Company in excess of 9.9% of the value of the Company's
outstanding capital stock.
<TABLE>
<CAPTION>
Broker
For Against Non-Votes Abstain
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Common Stock 1,615,902 34,620 714,004 12,275
Series B Preferred Stock 3,570,181 2,752 52,650 1,200
</TABLE>
In addition, at the Annual Meeting, the proposal to ratify the
selection of the firm of Ernst & Young LLP as the Company's
independent auditors for the year ending December 31, 1996 was
approved. The votes cast with respect to that proposal were as
set forth below:
For Against Abstain
--------- ------- -------
2,367,821 7,100 1,880
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<PAGE>
Item 5. Other Information
None
Item 6. Exhibits or Reports on Form 8-K
(a) The following exhibits are included in this Form 10-Q:
None
(b) Reports on Form 8-K:
On April 1, 1996, the Company filed a Current Report on Form 8-K,
dated April 1, 1996, reporting that the Company modified its
proposed exchange offer for its 8.5% Series B Cumulative
Convertible Preferred Stock.
On April 29, 1996, the Company filed a Current Report on Form
8-K, dated April 29, 1996, reporting that the Company commenced
the exchange offer for its 8.5% Series B Cumulative Convertible
Preferred Stock.
On June 6, 1996, the Company filed a Current Report on Form 8-K,
dated June 6, 1996, reporting that the Company obtained a
commitment for $260.0 million of various debt facilities from
Nomura Asset Capital Corporation, increased its proposed common
stock offering to $43.5 million and extended the expiration date
for the exchange offer to June 24, 1996.
-26-
<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 thereunto duly authorized.
PRIME RETAIL, INC.
Registrant
Date: August 13, 1996 /s/ Abraham Rosenthal
------------------------------ --------------------------
Abraham Rosenthal
Chief Executive Officer
Date: August 13, 1996 /s/ Robert P. Mulreaney
------------------------------ --------------------------
Robert P. Mulreaney
Executive Vice President,
Chief Financial Officer
and Treasurer
-27-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,040
<SECURITIES> 0
<RECEIVABLES> 6,588
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 26,452
<PP&E> 482,612
<DEPRECIATION> 48,272
<TOTAL-ASSETS> 460,792
<CURRENT-LIABILITIES> 30,899
<BONDS> 318,777
0
51
<COMMON> 96
<OTHER-SE> 110,539
<TOTAL-LIABILITY-AND-EQUITY> 460,792
<SALES> 0
<TOTAL-REVENUES> 41,281
<CGS> 0
<TOTAL-COSTS> 42,174<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,204
<INCOME-PRETAX> 2,315
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,315
<DISCONTINUED> 0
<EXTRAORDINARY> (1,017)<F2>
<CHANGES> 0
<NET-INCOME> 1,298
<EPS-PRIMARY> (2.30)
<EPS-DILUTED> 0
<FN>
<F1>Includes a nonrecurring charge of $6,131 related to a binding loan commitment
that the Company obtained on June 5, 1996.
<F2>Represents an extraordinary loss of $1,017 (net of minority interests in
the amount of $3,263) on early extinguishment of debt.
</FN>
</TABLE>
