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 September 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
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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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
As of November 12, 1996, the issuer had outstanding 13,404,651 shares of Common
Stock, $.01 par value per share.
<PAGE>
PRIME RETAIL, INC.
FORM 10-Q
INDEX
PART I: FINANCIAL INFORMATION PAGE
----
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets of Prime Retail, Inc.
as of September 30, 1996 and December 31, 1995. 1
Consolidated Statements of Operations of Prime
Retail, Inc. for the three and nine months ended
September 30, 1996 and 1995. 2
Consolidated Statements of Cash Flows of Prime Retail,
Inc. for the nine months ended September 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 10
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 27
ITEM 2. CHANGES IN SECURITIES 27
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 27
ITEM 5. OTHER INFORMATION 27
ITEM 6. EXHIBITS OR REPORTS ON FORM 8-K 27
SIGNATURES 28
<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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SEPTEMBER 30, 1996 December 31, 1995
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<S> <C> <C>
ASSETS:
Investment in rental property:
Land $ 35,544 $ 35,370
Buildings and improvements 414,487 403,542
Property under development 38,507 12,165
Furniture and equipment 3,779 3,403
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492,317 454,480
Accumulated depreciation (52,525) (40,190)
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439,792 414,290
Cash and cash equivalents 9,602 14,927
Restricted cash 2,623 2,230
Accounts receivable, net 6,500 8,751
Deferred charges, net 11,407 18,136
Due from affiliates, net 1,960 1,194
Investment in partnerships 13,150 2,258
Other assets 1,039 619
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Total assets $486,073 $462,405
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Bonds payable $ 32,900 $ 32,900
Notes payable 281,768 273,054
Accrued interest 3,001 3,034
Real estate taxes payable 4,074 3,142
Construction costs payable 5,885 5,796
Accounts payable and other liabilities 13,318 8,539
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Total liabilities 340,946 326,465
Minority interests - 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, 13,404,651 and 2,875,000
shares issued and outstanding, respectively 134 29
Additional paid-in capital 165,446 128,275
Distributions in excess of net income (20,504) (6,913)
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Total shareholders' equity 145,127 121,484
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Total liabilities and shareholders' equity $486,073 $462,405
======== ========
==================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PRIME RETAIL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share information)
<TABLE>
<CAPTION>
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THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
-------------------------- --------------------------
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
REVENUES:
Base rents $12,887 $12,081 $38,417 $33,709
Percentage rents 466 393 1,277 1,121
Tenant reimbursements 6,039 5,711 18,073 16,132
Income from investment partnerships 250 405 859 1,192
Interest and other 2,189 1,415 4,486 3,915
------- ------- ------- -------
Total revenues 21,831 20,005 63,112 56,069
EXPENSES:
Property operating 5,121 4,613 14,536 12,427
Real estate taxes 1,369 1,287 3,854 4,066
Depreciation and amortization 4,579 3,917 13,578 11,261
Corporate general and administrative 973 904 2,832 2,440
Interest 5,139 5,501 17,343 14,979
Other charges 475 551 7,687 1,459
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Total expenses 17,656 16,773 59,830 46,632
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INCOME BEFORE MINORITY INTERESTS AND
EXTRAORDINARY ITEM 4,175 3,232 3,282 9,437
(Income) loss allocated to minority interests (1,810) 1,290 1,398 4,151
------- ------- ------- -------
INCOME BEFORE EXTRAORDINARY ITEM 2,365 4,522 4,680 13,588
Extraordinary item -- loss on early extinguishment of
debt, net of minority interests in the amount of $3,263 - - (1,017) -
------- ------- ------- -------
NET INCOME 2,365 4,522 3,663 13,588
Income allocated to preferred shareholders 3,000 5,236 11,236 15,708
------- ------- ------- -------
NET LOSS APPLICABLE TO COMMON SHARES $ (635) $ (714) $(7,573) $(2,120)
======= ======= ======= =======
PER COMMON SHARE:
Loss before extraordinary item $ (0.05) $ (0.25) $ (1.01) $ (0.74)
Extraordinary item - - (0.16) -
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Net loss $ (0.05) $ (0.25) $ (1.17) $ (0.74)
======= ======= ======= =======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 13,322 2,875 6,481 2,875
======= ======= ======= =======
==============================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PRIME RETAIL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
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NINE MONTHS ENDED SEPTEMBER 30
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1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,663 $ 13,588
Adjustments to reconcile net income to
net cash provided by operating activities:
Loss allocated to minority interests (1,398) (4,151)
Extraordinary loss for early retirement of debt 1,017 -
Write off of financing costs 6,131 -
Depreciation and amortization 13,578 11,261
Amortization of deferred financing costs and
interest rate protection contracts 3,028 3,311
Equity earnings in excess of cash distributions
from joint ventures - (492)
Cash distributions in excess of equity earnings
from joint ventures 213 -
Provision for uncollectible accounts receivable 437 173
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 1,814 (1,821)
Increase in due from affiliates, net (766) (482)
(Increase) decrease in other assets (1,238) 3,970
Increase (decrease) in accrued interest (33) 596
Increase in accounts payable and other liabilities 4,857 138
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Net cash provided by operating activities 31,303 26,091
INVESTING ACTIVITIES:
Purchase of land (174) (3,071)
Purchase of buildings and improvements (11,319) (27,412)
Increase in property under development (36,645) (31,355)
Deferred leasing commissions (22) (34)
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Cash used in investing activities (48,160) (61,872)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock 38,843 -
Conversion of convertible preferred stock (1,342) -
Proceeds from notes payable 140,852 142,582
Principal repayments on notes payable (132,138) (82,933)
Deferred financing fees (7,821) (2,326)
Distributions and dividends paid (20,516) (18,253)
Distributions to minority interests (6,346) (3,603)
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Net cash provided by financing activities 11,532 35,467
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Decrease in cash and cash equivalents (5,325) (314)
Cash and cash equivalents at beginning of period 14,927 2,959
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Cash and cash equivalents at end of period $ 9,602 $ 2,645
========= =========
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
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 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
<PAGE>
NOTE 2 -- EXCHANGE OFFER AND SECONDARY COMMON STOCK OFFERING (CONTINUED)
limited partners of the Operating Partnership (the "Limited Partners")
contributed to the Operating Partnership 625,000 common units for cancellation.
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 3,705,000 shares at $11.375 per share (the "Common
Stock Offering"). The Company received net proceeds from the Common Stock
Offering of $38,843 that were used to repay outstanding indebtedness. The
selling stockholder sold 90,328 shares in conjunction with such secondary
offering.
A summary of the holders of the Series A preferred units, Series B convertible
preferred units and common units at September 30, 1996 follows:
<TABLE>
<CAPTION>
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Number of Units
------------------------------------------------
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
========= ========= ==========
=============================================================================================================================
<FN>
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 affiliates of PGI.
</FN>
</TABLE>
NOTE 3 -- INVESTMENT IN PARTNERSHIPS
On May 6, 1996, the Company and its joint venture partner, Fru-Con Projects,
Inc. ("Fru-Con") entered into a purchase agreement (the "Grove City Purchase
Agreement") pursuant to which the Company agreed, subject to certain conditions,
to purchase on or before February 28, 1997, all of Fru-Con's ownership interest
in Grove City Factory Shops Partnership, the property partnership which owns
Grove City Factory Shops. On November 1, 1996, the Company finalized the Grove
City Purchase Agreement and purchased Fru-Con's first mortgage and 50.0%
ownership interest in Grove City Factory Shops Partnership for $55,968.
Effective November 1, 1996, the Company owns 100.0% of Grove City Factory Shops
Partnership. The Company financed the purchase transaction primarily with a
portion of the proceeds from certain Nomura Asset Capital Corporation ("Nomura")
loan transactions that closed on November 1, 1996. See Note 4 of Notes to
Unaudited Consolidated Financial Statements for additional information regarding
the Nomura loan transactions.
On September 30, 1996, the Company obtained a $32,905 first mortgage loan
commitment and formed a joint venture partnership with Salomon Brothers Realty
Corp. ("SBRC") relating to the development and operation of Buckeye Factory
Shops located in Burbank, Ohio.
<PAGE>
NOTE 3 -- INVESTMENT IN PARTNERSHIPS (CONTINUED)
The terms of the first mortgage loan commitment with SBRC provide for borrowings
on two phases of Buckeye Factory Shops at amounts equal to approximately ninety
percent of the total estimated cost of the development and construction of each
phase. The first mortgage loan requires monthly payments of interest at a rate
equal to 30-day LIBOR plus 2.0%. Monthly principal payments are required based
on available cash flows, as defined. The loan will be due three years from the
initial disbursement date of the Phase I loan. The maximum loan amounts for
Phases I and II of Buckeye Factory Shops are limited to $22,905 and $10,000,
respectively.
Under the joint venture agreement, the Company and SBRC will hold capital
interests of 75.0% and 25.0%, respectively. The Company and SBRC are required to
make combined equity contributions totaling at least 10.0% of the total cost of
the development and construction of each phase of the project. Earnings and cash
flows of the partnership are allocated based on the partnership agreement. The
project will be developed, leased, and managed exclusively by the Company which
will be entitled to certain management, construction management, development and
leasing fees for its services. Additionally, the Company may, at its option,
elect to purchase all of SBRC's ownership interest in the project at a
contractually determined amount at any time prior to the maturity date of the
first mortgage loan.
NOTE 4 -- BONDS AND NOTES PAYABLE
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 were 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. The outstanding principal balance of the Refinancing Loan at September
30, 1996 was $6,986.
On May 7, 1996, the Company's unsecured line of credit (the "Corporate Line")
was renewed and increased from $10,000 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 September 30, 1996 was $12,000 and the
interest rate was 7.67%. As a result of repayments subsequent to September 30,
1996, the available balance as of November 1, 1996 was $13,700.
<PAGE>
NOTE 4 -- BONDS AND NOTES PAYABLE (CONTINUED)
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 (the "Construction Mortgage Loan"). The Construction Mortgage Loan
(i) bears a variable interest rate at the financial institution's prime rate or,
at the Company's option, a LIBOR index plus 2.25%, (ii) matures on September 10,
1998 and (iii) requires monthly interest-only payments. The Construction
Mortgage Loan is collateralized by a first mortgage on Carolina Factory Shops, a
new outlet center which opened on November 8, 1996, located in Gaffney, South
Carolina. At September 30, 1996, the outstanding balance of the Construction
Mortgage Loan was $5,475.
On August 1, 1996, the Company closed on the refinancing of certain credit
facilities with Nomura (the "Nomura Credit Facilities"). The Nomura Credit
Facilities provided an aggregate of $253,000 of financing to the Company. The
Nomura Credit Facilities were used (i) to refinance $151,323 which was
outstanding under a revolving credit facility, (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 Nomura Credit Facilities consisted of two notes,
one in the amount of $218,000 and the other in the amount of $35,000. Each note
required monthly payments of interest-only at a rate equal to 30-day LIBOR plus
1.513%. At September 30, 1996, the outstanding balance of the Nomura Credit
Facilities was $253,000. The Nomura Credit Facilities were repaid on November 1,
1996 in connection with the closing of certain loan transactions as described
below.
In connection with the execution of the binding commitment for the Nomura Credit
Facilities, the Company incurred a nonrecurring charge and extraordinary loss of
$6,131 and $4,280, respectively, during the second quarter of 1996. The
nonrecurring loss resulted 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 resulted 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 November 1, 1996, the Company closed on $428,290 of loan facilities with
Nomura. The transaction provided (i) a $319,000 non-recourse first mortgage loan
(the "First Mortgage Loan") for sixteen of the Company's factory outlet centers,
(ii) a $40,000 non-recourse expansion loan (the "Expansion Loan"), (iii) a
junior secured loan (the "Repo Financing") of $53,290, and (iv) a short-term
unsecured loan of $16,000 (the "Unsecured Loan").
<PAGE>
NOTE 4 -- BONDS AND NOTES PAYABLE (CONTINUED)
The First Mortgage Loan and the Expansion Loan (i) are cross-collateralized by
first mortgages on sixteen of the Company's factory outlet centers (including
Rocky Mountain Factory Stores and Kansas City Factory Outlets which were
purchased by the Company on November 1, 1996 -- see Note 7 of Notes to Unaudited
Consolidated Financial Statements for additional information), (ii) bear a
variable interest rate of 30-day LIBOR plus 1.51% during the first two years and
a fixed interest rate of 7.782% for the balance of the seven-year term, and
(iii) require monthly principal and interest payments pursuant to a level
payment 360 month amortization schedule. The First Mortgage Loan and the
Expansion Loan can be prepaid only after year two by the use of certain debt
defeasance and yield maintenance provisions and are effectively due at the end
of year seven.
The Repo Financing is a recourse loan to the Company and (i) is secured by a
pledge of excess cash flow after debt service on the First Mortgage Loan and the
Expansion Loan, (ii) bears a variable interest rate of 30-day LIBOR plus 1.95%,
(iii) matures in three years, and (iv) requires monthly interest-only payments
during the first year of its term and monthly interest payments and quarterly
principal payments thereafter pursuant to six-year amortization schedule.
The proceeds from the First Mortgage Loan, the Repo Financing and the Unsecured
Loan were used (i) to repay $253,000 debt outstanding under the Nomura Credit
Facilities, (ii) to purchase Rocky Mountain Factory Stores and Kansas City
Factory Outlets for $71,700 (consisting of $59,700 in cash and a $12,000
installment note), (iii) to purchase the first mortgage and the 50.0%
partnership interest of its joint venture partner in Grove City Factory Shops
Partnership for $57,100, and (iv) for loan fees, escrow deposits, interest rate
protection contracts and transaction costs of approximately $12,700. The
remaining proceeds of $5,800 will be used for working capital purposes. Subject
to certain funding conditions, proceeds from the Expansion Loan will be used to
fund completed and occupied expansions on certain of the sixteen factory outlet
centers pledged as collateral for the First Mortgage Loan.
The Unsecured Loan (i) bears a variable interest rate of 30-day LIBOR plus
3.50%, (ii) requires monthly interest-only payments, (iii) requires mandatory
principal payments of $6,000 on the earlier of September 11, 1997, or upon
repayment from fundings under the Expansion Loan, and (iv) matures on November
11, 1997.
On November 1, 1996, the Company amended certain of its interest rate protection
contracts with an aggregate notional amount of $96,441 at September 30, 1996.
The significant terms that were amended included (i) an increase in the notional
amount to $262,000, and (ii) a change in the termination date from July 1, 2000
to November 11, 1998. In addition, on November 1, 1996, the Company purchased an
interest rate protection contract with a notional amount of $97,000 that
provides for a cap to the variable interest rate index at 7.00% and a
termination date of November 11, 1998. As a result, the Company held interest
rate protection contracts with an aggregate notional amount of $359,000 as of
November 1, 1996 to reduce its exposure to increases in short-term interest
rates with respect to the First Mortgage Loan and the Expansion Loan, prior to
the fixed interest rate period which commences after twenty-four months.
<PAGE>
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 an
affiliate of PGI 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 judgment
in favor of the Company as a matter of law on all claims. The plaintiffs have
filed a notice of appeal of the judgment with the United States Court of Appeals
for the Fourth Circuit.
NOTE 6 -- CASH DISTRIBUTIONS
On November 11, 1996, the Company's board of directors approved a cash
distribution of $2,509, or $0.295 per common unit, to the limited partners of
the Operating Partnership. The cash distribution will be paid on November 15,
1996.
NOTE 7 -- ACQUISITIONS
On November 1, 1996, the Company acquired the Rocky Mountain Factory Stores and
the Kansas City Factory Outlets for an aggregate purchase price of approximately
$71,700. The Company financed the purchase with a portion of the proceeds from
the Nomura loan transactions that closed on November 1, 1996 and the issuance to
the seller of a $12,000 unsecured installment note. The installment note bears
interest at a fixed rate of 8.25% and requires quarterly interest payments in
arrears. Commencing November 30, 1997 through November 30, 1998, the note will
be repaid with four quarterly principal payments each in the amount of $3,000.
See Note 4 of Notes to Unaudited Consolidated Financial Statements for
additional information regarding the Nomura loan transactions.
<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 4,487,000 square feet of gross leasable area ("GLA") at
September 30, 1996, compared to sixteen factory outlet centers totaling
3,837,000 square feet of GLA at September 30, 1995. The Company opened one new
factory outlet center and four expansions of existing factory outlet centers
during the fourth quarter of 1995, adding 494,000 square feet of GLA in the
aggregate. Additionally, the Company opened four expansions of existing factory
outlet centers during the third quarter of 1996, adding 156,000 square feet of
GLA in the aggregate. The significant increase in the number of operating
properties and total GLA at September 30, 1996 compared to the portfolio of
properties at September 30, 1995, is collectively referred to as the "Portfolio
Expansion".
<PAGE>
TABLE 1 -- PORTFOLIO OF PROPERTIES AS OF SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
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 95%
Chattanooga, Tennessee II 65% August 1993 26,000 94
--------- ---
121,000 95
San Marcos Factory Shops-- I 100% August 1990 177,000 100
San Marcos, Texas II August 1991 67,000 96
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 IIA July 1996 6,000 100
--------- ---
187,000 100
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 186,000 100
Jeffersonville, Ohio II November 1993 100,000 99
IIB November 1994 13,000 100
IIIA August 1996 35,000 36
--------- ---
334,000 93
Gainesville Factory Shops-- I 100% August 1993 210,000 94
Gainesville, Texas II November 1994 106,000 94
--------- ---
316,000 94
Nebraska Crossing Factory Shops-- I 100% October 1993 192,000 98
Gretna, Nebraska
Oxnard Factory Outlet(4)-- I 30% June 1994 148,000 98
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
</TABLE>
<PAGE>
TABLE 1 -- PORTFOLIO OF PROPERTIES AS OF SEPTEMBER 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>
Florida Keys Factory Shops-- I 100% September 1994 208,000 97%
Florida City, Florida
Indiana Factory Shops-- I 100% November 1994 208,000 91
Daleville, Indiana
Magnolia Bluff Factory Shops(6)-- I 100% July 1995 238,000 90
Darien, Georgia IIA November 1995 56,000 69
IIB July 1996 21,000 66
--------- ---
315,000 85
Arizona Factory Shops(7)-- I 50% September 1995 217,000 97
Phoenix, Arizona IIA September 1996 94,000 60
--------- ---
311,000 86
Gulfport Factory Shops(8)-- I 100% November 1995 228,000 94
Gulfport, Mississippi --------- ---
TOTAL FACTORY OUTLET CENTERS(10) 4,487,000 95%
========= ===
=============================================================================================================================
<FN>
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 September 30, 1996.
(4) The Company owns 30% of this factory outlet center in a joint venture partnership with unrelated third parties.
(5) The Company purchased its joint venture partner's 50% ownership interest in the general partnership that owns this
property on November 1, 1996. As of November 1, 1996, the Company owns 100% of this factory outlet center. See Note 3
of Notes to the Unaudited Consolidated Financial Statements for additional information regarding the purchase
transaction.
(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 September 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 September 30, 1996.
</FN>
</TABLE>
<PAGE>
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1996 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1995
Summary
For the three months ended September 30, 1996, the Company reported net income
of $2,365 on total revenues of $21,831. For the three months ended September 30,
1996, the net loss applicable to common shareholders was $635 or $0.05 per
common share. For the three months ended September 30, 1995, the Company
reported net income of $4,522 on total revenues of $20,005. For the same period,
the net loss applicable to common shareholders was $714, or $0.25 per common
share.
Revenues
Total revenues were $21,831 for the three months ended September 30, 1996, as
compared to $20,005 for the three months ended September 30, 1995, an increase
of $1,826, or 9.1%. Base rents increased $806, or 6.7%, in 1996 compared to
1995. These increases are primarily due to the Portfolio Expansion.
Straight-line rents (included in base rents) were $101 and $295 for the three
months ended September 30, 1996 and 1995, respectively. Tenant reimbursements,
which represent the contractual recovery from tenants of certain operating
expenses, increased by $328, or 5.7%, during the three months ended September
30, 1996 over the same period in 1995. These increases are primarily due to the
Portfolio Expansion.
Income from investment partnerships decreased by $155 for the three months ended
September 30, 1996 over the same period in 1995. Interest and other income
increased by $774, or 54.7%, to $2,189 during the three months ended September
30, 1996 as compared to $1,415 for the three months ended September 30, 1995.
This increase is attributable to higher lease termination income, leasing
commissions, property management fees and push cart income of $358, $304, $100
and $99, respectively, partially offset by lower real estate brokerage
commissions, interest income and ancillary income of $26, $22 and $39,
respectively.
Expenses
Property operating expenses increased by $508, or 11.0%, to $5,121 for the three
months ended September 30, 1996 compared to $4,613 for the same period in 1995.
Real estate taxes increased by $82, or 6.4%, to $1,369 for the three months
ended September 30, 1996, from $1,287 in the same period for 1995. The increases
in property operating expenses and real estate taxes are primarily due to the
Portfolio Expansion. As shown in TABLE 2, depreciation and amortization expense
increased by $662, or 16.9%, to $4,579 for the three months ended September 30,
1996, compared to $3,917 for 1995. This increase results from the depreciation
and amortization of assets associated with the Portfolio Expansion.
<PAGE>
TABLE 2 -- COMPONENTS OF DEPRECIATION AND AMORTIZATION EXPENSE
The components of depreciation and amortization expense are summarized as
follows:
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
SEPTEMBER 30
---------------------------
1996 1995
- --------------------------------------------------------------------------------
Building and improvements $2,289 $2,066
Land improvements 502 357
Tenant improvements 1,294 900
Furniture and fixtures 171 158
Leasing commissions(1) 323 436
------ ------
Total $4,579 $3,917
====== ======
================================================================================
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
SEPTEMBER 30
---------------------------
1996 1995
- --------------------------------------------------------------------------------
Interest incurred $5,257 $5,075
Interest capitalized (857) (546)
Interest earned on interest rate protection contracts (40) (133)
Amortization of deferred financing costs 316 786
Amortization of interest rate protection contracts 463 319
------ ------
Total $5,139 $5,501
====== ======
================================================================================
As shown in TABLE 3, interest expense for the three months ended September 30,
1996 decreased by $362, or 6.6%, to $5,139 compared to $5,501 for the same
period in 1995. This decrease reflects an increase in the amount of interest
capitalized in connection with new development projects of $311 and a decrease
in amortization of deferred financing costs of $470 offset by increases in
interest incurred and amortization of interest rate protection agreements of
$182 and $144, respectively, as well as a decrease in interest earned on
interest rate protection contracts of $93.
The decrease in amortization of deferred financing costs is primarily
attributable to reduced amortization related to certain deferred financing costs
totaling $6,773 which were written off in the second quarter of 1996. These
costs were part of the $10,411 nonrecurring loss recorded in the second quarter
of 1996 related to a binding loan commitment that the Company obtained on June
5, 1996 in connection with refinancing $253,000 of debt. See Note 2 of Notes to
Unaudited Financial Statements for additional information regarding the Nomura
Asset Capital Corporation ("Nomura") loan transactions.
<PAGE>
Other charges decreased by $76, or 13.8%, to $475. This decrease reflects
reduced marketing costs of $227 and a lower provision for potentially
unsuccessful pre-development efforts of $120 partially offset by increased
professional fees, ground lease expense and other miscellaneous charges of $105,
$48 and $68, respectively. Additionally, other charges includes a higher
provision for uncollectible accounts receivable of $50.
In connection with re-leasing space to new merchants, the Company incurred $54
and $403 in capital expenditures during the three months ended September 30,
1996 and 1995, respectively.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1996 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995
Summary
For the nine months ended September 30, 1996, the Company reported net income of
$3,663 on total revenues of $63,112. 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 nine months ended September 30, 1996,
the net loss applicable to common shareholders was $7,573 or $1.17 per common
share. For the nine months ended September 30, 1995, the Company reported net
income of $13,588 on total revenues of $56,069. For the same period, the net
loss applicable to common shareholders was $2,120, or $0.74 per common share.
Revenues
Total revenues were $63,112 for the nine months ended September 30, 1996, as
compared to $56,069 for the nine months ended September 30, 1995, an increase of
$7,043, or 12.6%. Base rents increased $4,708, or 14.0%, in 1996 compared to
1995. These increases are primarily due to the Portfolio Expansion.
Straight-line rents (included in base rents) were $338 and $682 for the nine
months ended September 30, 1996 and 1995, respectively.
Tenant reimbursements, which represent the contractual recovery from tenants of
certain operating expenses, increased by $1,941, or 12.0%, during the nine
months ended September 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 98.3% from 97.8% during the nine
months ended September 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 $333 for the nine months ended
September 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 increased by $571,
or 14.6%, to $4,486 during the nine months ended September 30, 1996 as compared
to $3,915 for the nine months ended September 30, 1995. The increase is
attributable to higher lease termination income, property management fees and
push cart income of $722, $208 and $183, respectively, partially offset by lower
leasing commissions, real estate brokerage commissions and ancillary income of
$325, $178 and $39, respectively.
<PAGE>
Expenses
Property operating expenses increased by $2,109, or 17.0%, to $14,536 for the
nine months ended September 30, 1996 compared to $12,427 for the same period in
1995. Real estate taxes decreased by $212, or 5.2%, to $3,854 for the nine
months ended September 30, 1996, from $4,066 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
management's successful efforts in lowering tax assessments for certain
properties. As shown in TABLE 4, depreciation and amortization expense increased
by $2,317, or 20.6%, to $13,578 for the nine months ended September 30, 1996,
compared to $11,261 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:
-------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30
--------------------------
1996 1995
- --------------------------------------------------------------------------------
Building and improvements $ 6,744 $ 5,994
Land improvements 1,455 1,004
Tenant improvements 3,648 2,555
Furniture and fixtures 486 381
Leasing commissions(1) 1,245 1,327
------ ------
Total $13,578 $11,261
======= =======
================================================================================
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:
- --------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30
--------------------------
1996 1995
- --------------------------------------------------------------------------------
Interest incurred $16,651 $14,010
Interest capitalized (2,175) (1,761)
Interest earned on interest
rate protection contracts (162) (581)
Amortization of deferred financing costs 1,928 2,354
Amortization of interest rate protection contracts 1,101 957
------- -------
Total $17,343 $14,979
======= =======
================================================================================
<PAGE>
As shown in TABLE 5, interest expense for the nine months ended September 30,
1996 increased by $2,364, or 15.8%, to $17,343 compared to $14,979 for the same
period in 1995. This increase reflects higher interest incurred of $2,641, an
increase in amortization of interest rate protection contracts of $144 and a
reduction in interest earned on interest rate protection contracts of $419
partially offset by a decrease in amortization of deferred financing costs of
$426 and an increase in the amount of interest capitalized in connection with
new development projects of $414.
The increase in interest incurred is primarily attributable to an increase of
approximately $69,606 in the Company's average debt outstanding during the nine
months ended September 30, 1996 compared to the same period in 1995.
Additionally, the increase in interest incurred reflects a decrease of 0.58% in
the weighted average interest rate for the nine months ended September 30, 1996
compared to the same period in 1995. The weighted average interest rates were
7.12% and 7.70% for the 1996 and 1995 periods, respectively.
The decrease in amortization of deferred financing costs is primarily
attributable to reduced amortization related to certain deferred financing costs
totaling $6,773 which were written off in the second quarter of 1996. These
costs were part of the $10,411 nonrecurring loss recorded in the second quarter
of 1996 related to a binding loan commitment that the Company obtained on June
5, 1996 in connection with refinancing $253,000 of debt. See Note 2 of Notes to
Unaudited Financial Statements for additional information regarding the
refinancing transaction.
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 $6,228 to $7,687 for the nine months
ended September 30, 1996 compared to $1,459 for the same period in 1995.
Excluding the nonrecurring charge, other charges increased by $97, or 6.6%, to
$1,556. This increase reflects a higher provision for uncollectible accounts
receivable of $264, increased ground lease expense of $180, increased
miscellaneous other charges of $119, decreased marketing costs of $296 and a
lower provision for potentially unsuccessful pre-development efforts of $170.
In connection with re-leasing space to new merchants, the Company incurred $194
and $565 in capital expenditures during the nine months ended September 30, 1996
and 1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES AND USES OF CASH -- GENERAL
For the nine months ended September 30, 1996, net cash provided by operating
activities was $31,303 and cash used in investing activities was $48,160. The
primary use of cash used in investing activities was for costs associated with
the development and construction of two new factory outlet centers and four
expansions of existing factory outlet centers scheduled to open during the
fourth quarter of 1996, costs associated with the three expansions which opened
during the third quarter of 1996, costs associated with the completion of two
factory outlet centers and three expansions which opened during 1995 and costs
for pre-development activities associated with future developments. Net cash
provided by financing activities was $11,532 for the nine months ended September
30, 1996.
<PAGE>
The principal sources of these funds were the proceeds from the Company's
secondary stock offering (the "Common Stock Offering") of $38,843 and new
borrowings of $140,852 offset by the payment of deferred financing costs of
$7,821, principal repayments on notes payable of $132,138, distributions to
minority interests (including distributions to the limited partner unit holders)
of $6,346, preferred and common stock distributions of $20,516, and payment of
certain costs related to the Exchange Offer (as defined herein) of $1,342.
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 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 from the Common Stock Offering of
$38,843 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 Company's unsecured line of credit (the "Corporate Line")
was renewed and increased from $10,000 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 September 30, 1996 was $12,000 and the
interest rate was 7.67%. As a result of repayments subsequent to September 30,
1996, the available balance as of November 1, 1996 was $13,700.
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 (i) bears a variable interest rate at the financial institution's
prime rate or, at the Company's option, a LIBOR index, (ii) matures two years
after closing on the Construction Mortgage Loan and (iii) requires monthly
interest-only payments. The Construction Mortgage Loan is collateralized by a
first mortgage on Carolina Factory Shops located in Gaffney, South Carolina.
<PAGE>
Carolina Factory Shops contains approximately 235,000 square feet of GLA and
opened to the public on November 8, 1996. At September 30, 1996, the outstanding
balance of the Construction Mortgage Loan was $5,475.
SOURCES AND USES OF CASH -- THE NOMURA LOANS
On August 1, 1996, the Company closed on the refinancing of certain credit
facilities (the "Nomura Credit Facilities") with Nomura. The Nomura Credit
Facilities provided an aggregate of $253,000 of financing to the Company. The
Nomura Credit Facilities were used (i) to refinance $151,323 which was
outstanding under a revolving credit facility, (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 Nomura Credit Facilities consisted of two notes,
one in the amount of $218,000 and the other in the amount of $35,000. Each note
required monthly payments of interest-only at a rate equal to 30-day LIBOR plus
1.513%. At September 30, 1996, the outstanding balance of the Nomura Credit
Facilities was $253,000. The Nomura Credit Facilities were repaid on November 1,
1996 in connection with the closing of certain loan transactions as described
below.
In connection with the execution of the binding commitment for the Nomura Credit
Facilities, the Company incurred a nonrecurring charge and extraordinary loss of
$6,131 and $4,280, respectively, during the second quarter of 1996. The
nonrecurring loss resulted 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 resulted 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 November 1, 1996, the Company closed on $428,290 of loan facilities with
Nomura. The transaction provided (i) a $319,000 non-recourse first mortgage loan
(the "First Mortgage Loan") for sixteen of the Company's factory outlet centers,
(ii) a $40,000 non-recourse expansion loan (the "Expansion Loan"), (iii) a
junior secured loan (the "Repo Financing") of $53,290, and (iv) a short-term
unsecured loan of $16,000 (the "Unsecured Loan").
The First Mortgage Loan and the Expansion Loan (i) are cross-collateralized by
first mortgages on sixteen of the Company's factory outlet centers (including
Rocky Mountain Factory Stores and Kansas City Factory Outlets which were
purchased by the Company on November 1, 1996 -- see Sources and Uses of Cash --
Acquisition of Rocky Mountain Factory Stores and Kansas City Factory Outlets for
additional information), (ii) bear a variable interest rate of 30-day LIBOR plus
1.51% during the first two years and a fixed interest rate of 7.782% for the
balance of the seven-year term, and (iii) require monthly principal and interest
payments pursuant to a level payment 360 - month amortization schedule. The
First Mortgage Loan and the Expansion Loan can be prepaid only after year two by
the use of certain debt defeasance and yield maintenance provisions and are
effectively due at the end of year seven.
<PAGE>
The Repo Financing is a recourse loan to the Company and (i) is secured by a
pledge of excess cash flow after debt service on the First Mortgage Loan and the
Expansion Loan, (ii) bears a variable interest rate of 30-day LIBOR plus 1.95%,
(iii) matures in three years, and (iv) requires monthly interest-only payments
during the first year of its term and, thereafter, monthly interest payments and
quarterly principal payments pursuant to a six-year amortization schedule.
The proceeds from the First Mortgage Loan, the Repo Financing and the Unsecured
Loan were used (i) to repay $253,000 debt outstanding under the Nomura Credit
Facilities, (ii) to purchase Rocky Mountain Factory Stores and Kansas City
Factory Outlets for $71,700 (consisting of $59,700 in cash and a $12,000
installment note), (iii) to purchase the first mortgage and the 50.0%
partnership interest of its joint venture partner in Grove City Factory Shops
Partnership for $57,100, and (iv) for loan fees, escrow deposits, interest rate
protection contracts and transaction costs of approximately $12,700. The
remaining proceeds of $5,800 will be used for working capital purposes. Subject
to certain funding conditions, proceeds from the Expansion Loan will be used to
fund completed and occupied expansions on certain of the sixteen factory outlet
centers pledged as collateral for the First Mortgage Loan.
The Unsecured Loan (i) bears a variable interest rate of 30-day LIBOR plus
3.50%, (ii) requires monthly interest-only payments, (iii) requires mandatory
principal payments of $6,000 on the earlier of September 11, 1997, or upon
repayment from fundings under the Expansion Loan, and (iv) matures on November
11, 1997.
On November 1, 1996, the Company amended certain of its interest rate protection
contracts with an aggregate notional amount of $96,441 at September 30, 1996.
The significant terms that were amended included (i) an increase in the notional
amount to $262,000 and (ii) a change in the termination date to November 11,
1998. In addition, on November 1, 1996, the Company purchased an interest rate
protection contract with a notional amount of $97,000 that provides for a cap to
the variable interest rate index at 7.00% and a termination date of November 11,
1998. As a result, the Company held interest rate protection contracts with an
aggregate notional amount of $359,000 as of November 1, 1996 to reduce its
exposure to increases in short-term interest rates with respect to the First
Mortgage Loan and the Expansion Loan, prior to the fixed interest rate period
which commences after twenty-four months.
The Company's existing $160,000 loan (the "Revolving Loan") with Nomura was not
terminated as a result of the refinancing loan transactions. However, the
collateral that was pledged thereunder was released and pledged to Nomura under
the First Mortgage Loan and Expansion Loan which are cross-collateralized. The
Revolving Loan is available, subject to sufficient collateral being pledged to
Nomura, for acquisitions, expansions and new outlet centers.
The Revolving Loan bears interest at 30-day LIBOR plus 1.75%, requires monthly
interest-only payments, and matures on December 31, 1996. The Company can extend
the maturity of the Revolving Loan for a period of one year subject to its
satisfaction of certain financial covenants. The Revolving Loan agreement
contains certain convenants 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 September 30, 1996, the Company was in compliance with
monetary, non-monetary and debt service covenants. There was no principal
balance outstanding under the Revolving Loan at September 30, 1996.
<PAGE>
The amount available to be drawn by the Company under the Revolving Loan at any
time during the term of the facility is calculated based upon the net cash flow
from the collateral, as defined. The collateral pool of the Revolving Loan can
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.
SOURCES AND USES OF CASH -- GROVE CITY FACTORY SHOPS PURCHASE TRANSACTION
On May 6, 1996, the Company and its joint venture partner, Fru-Con Projects,
Inc. ("Fru-Con") entered into a purchase agreement (the "Grove City Purchase
Agreement") pursuant to which the Company agreed, subject to certain conditions,
to purchase on or before February 28, 1997, all of Fru-Con's ownership interest
in Grove City Factory Shops Partnership, the property partnership which owns
Grove City Factory Shops. On November 1, 1996, the Company completed the Grove
City Purchase Agreement and purchased Fru-Con's first mortgage and 50.0%
ownership interest in Grove City Factory Shops Partnership for $55,968.
Effective November 1, 1996, the Company owns 100.0% of Grove City Factory Shops
Partnership. The Company financed the purchase transaction primarily with the
proceeds from certain Nomura loan transactions that closed on November 1, 1996.
SOURCES AND USES OF CASH -- BUCKEYE FACTORY SHOPS FIRST MORTGAGE LOAN COMMITMENT
AND JOINT VENTURE PARTNERSHIP
On September 30, 1996, Company obtained a $32,905 first mortgage loan commitment
and formed a joint venture partnership with Salomon Brothers Realty Corp.
("SBRC") relating to the development and operation of Buckeye Factory Shops
located in Burbank, Ohio.
The terms of the first mortgage loan commitment with SBRC provides for
borrowings on two phases of Buckeye Factory Shops at amounts equal to
approximately ninety percent of the total estimated cost of the development and
construction of each phase. The first mortgage loan requires monthly payments of
interest at a rate equal to 30-day LIBOR plus 2.0%. Monthly principal payments
are required based on available cash flows, as defined. The loan will be due
three years from the initial disbursement date of the Phase I loan. The maximum
loan amounts for Phases I and II of Buckeye Factory Shops are limited to $22,905
and $10,000, respectively.
Under the real estate joint venture agreement, the Company and SBRC will hold
capital interests of 75.0% and 25.0%, respectively. The Company and SBRC are
required to make combined equity contributions totaling at least 10.0% of the
total cost of the development and construction of each phase of the project. The
project will be developed, leased, and managed exclusively by the Company which
will be entitled to certain management, construction management, development and
leasing fees for its services. Additionally, the Company may, at its option,
elect to purchase all of SBRC's ownership interest in the project at a
contractually determined amount at any time prior to the maturity date of the
first mortgage loan.
<PAGE>
SOURCES AND USES OF CASH -- ACQUISITION OF ROCKY MOUNTAIN FACTORY STORES AND
KANSAS CITY FACTORY OUTLETS
On November 1, 1996, the Company acquired the Rocky Mountain Factory Stores and
the Kansas City Factory Outlets for an aggregate purchase price of approximately
$71,700. The Company financed the purchase with a portion of the proceeds from
the Nomura loan transactions that closed on November 1, 1996 and the issuance to
the seller of a $12,000 unsecured installment note. The installment note bears
interest at a fixed rate of 8.25% and requires quarterly interest payments in
arrears. Commencing November 30, 1997 through November 30, 1998, the note will
be repaid with four quarterly principal payments each in the amount of $3,000.
Rocky Mountain Factory Stores is located in Loveland, Colorado, which is
approximately 35 miles north of Denver, Colorado and 40 miles south of Cheyenne,
Wyoming. Rocky Mountain Factory Stores contains approximately 328,000 square
feet of GLA and was 100.0% occupied at September 30, 1996. Rocky Mountain
Factory Stores was constructed in four phases with the first phase opening in
May 1994. Kansas City Factory Outlets is located in Odessa, Missouri, which is
approximately 20 miles east of Kansas City on Interstate 70. Phase I of Kansas
City Factory Outlets contains approximately 191,000 square feet of GLA and was
99.0% occupied at September 30, 1996. Kansas City Factory Outlets opened in July
1995. Phase II, which contains approximately 105,000 square feet of GLA, opened
to the public on November 8, 1996.
DEVELOPMENT
Management believes that there is sufficient demand for continued development of
new factory outlet centers and expansions on certain existing factory outlet
centers. The Company expects to open 915,000 square feet of GLA during 1996. The
Company opened four expansions on existing factory outlet centers totaling
156,000 square feet of GLA during the third quarter of 1996. The Company expects
to open an additional 759,000 square feet of GLA during the fourth quarter of
1996, including an expansion consisting of 105,000 square feet of GLA at Kansas
City Factory Outlets, a factory outlet center purchased by the Company on
November 1, 1996. See Sources and Uses of Cash -- Acquisition of Rocky Mountain
Factory Stores and Kansas City Factory Outlets for additional information.
At September 30, 1996, the estimated aggregate remaining capital expenditures
for the 915,000 square feet of new factory outlet centers and expansions opened
and expected to open in 1996 approximated $48,115. 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 $797.
TABLE 6 - THIRD QUARTER OPENINGS
TABLE 6 summarizes the opening dates and total GLA relating to expansion of
existing centers that opened in the third quarter of 1996.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
PROJECT LOCATION PHASE OPENING DATE GLA
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Arizona Factory Shops Phoenix, AZ IIA September 26, 1996 94,000
Ohio Factory Shops Jeffersonville, OH IIIA August 29, 1996 35,000
Magnolia Bluff Factory Shops Darien, GA IIB July 28, 1996 21,000
Triangle Factory Shops Raleigh-Durham, NC IIA July 19, 1996 6,000
-------
Total Third Quarter Openings 156,000
=======
=============================================================================================================================
</TABLE>
<PAGE>
TABLE 7 - FACTORY OUTLET CENTERS AND EXPANSIONS UNDER CONSTRUCTION(1)
TABLE 7 summarizes the projected opening dates and total GLA of the new factory
outlet centers and expansions to existing outlet centers under construction as
of September 30, 1996 and opened or expected to open in the fourth quarter of
1996.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
ACTUAL/PROJECTED
PROJECT LOCATION PHASE 1996 OPENING DATE GLA
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Carolina Factory Shops Gaffney, SC I November 8 235,000
Buckeye Factory Shops Burbank, OH I November 22 205,000
-------
Total New Centers under
Construction 440,000
Grove City Factory Shops Grove City, PA IV November 15 118,000
Kansas City Factory Outlets Odessa, MO II November 8 105,000
Gulfport Factory Shops Gulfport, MS IIA November 1 40,000
Gulf Coast Factory Shops Ellenton, FL III October 18 30,000
Indiana Factory Shops Daleville, IN IIA November 14 26,000
-------
Total Expansions under
Construction 319,000
-------
Total New Centers and
Expansions under Construction 759,000
=======
=============================================================================================================================
</TABLE>
Note:
(1) No assurance can be given that these new factory outlet centers and
expansions 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 and
1996 openings. These funding requirements are expected to be met, in large part,
with the proceeds from the Nomura loan facilities, the Corporate Line, the
Construction Mortgage Loan, and joint venture partners. If 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.
The Company plans to open new factory outlet centers and expansions in 1997 that
are expected to contain approximately 750,000 square feet of GLA in the
aggregate, and have a total expected development cost of approximately $82,500.
However, on November 7, 1996, a court overturned the zoning decision that would
have allowed development of a planned new outlet center in Hagerstown, Maryland
of approximately 235,000 square feet of GLA. The Company plans to appeal the
court's decision. A successful appeal is necessary for development of the
planned new outlet center on the identified site during 1997. The Company
expects to fund the development cost of its new factory outlet centers and
expansions from (i) certain line of credit facilities, (ii) joint venture
partners, (iii) retained cash flow from operations, (iv) construction loans, and
(v) the potential sale of common or preferred equity in the public or private
capital markets. As of September 30, 1996, there were no material commitments
with regard to the construction of the new factory outlet centers and expansions
scheduled to open in 1997. There can be no assurance that the Company will be
successful in obtaining the required amount of equity capital or debt financing
for the 1997 planned openings or that the terms of such capital raising
activities will be as favorable as the Company has experienced in prior periods.
<PAGE>
DEBT REPAYMENTS AND PREFERRED STOCK DIVIDENDS
The Company's aggregate indebtedness was $314,668 and $305,954 at September 30,
1996 and December 31, 1995, respectively. At September 30, 1996, such
indebtedness had a weighted average maturity of 3.4 years and bore interest at a
weighted average interest rate of 6.70% per annum. At September 30, 1996,
$15,943, or 5.1%, of such indebtedness bore interest at fixed rates and
$298,725, or 94.9%, of such indebtedness, including $28,250 of tax-exempt bonds,
bore interest at variable-rates.
At September 30, 1996, the Company held interest rate protection contracts on
$28,250 of floating rate tax-exempt indebtedness and $96,441 of other floating
rate indebtedness (or approximately 41.7% of its total floating rate
indebtedness). These contracts were scheduled to expire in 1999 and 2000,
respectively. In addition, the Company held additional interest rate protection
contracts on $43,900 of the $96,441 floating rate indebtedness to further reduce
the Company's exposure to increases in interest rates. On November 1, 1996, the
Company amended certain of its interest rate protection contracts with an
aggregate notional amount of $96,441 at September 30, 1996. The significant
terms that were amended included (i) an increase in the notional amount to
$262,000 and (ii) a change in the termination date to November 11, 1998. In
addition, on November 1, 1996, the Company purchased an interest rate protection
contract with a notional amount of $97,000 that provides for a cap to the
variable interest rate index at 7.00% and a termination date of November 11,
1998. As a result, the Company held interest rate protection contracts with an
aggregate notional amount of $359,000 as of November 1, 1996 to reduce its
exposure to increases in interest rates with respect to the First Mortgage Loan
and the Expansion Loan, prior to the fixed interest rate period which commences
after twenty-four months.
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 45.5% at September 30, 1996.
As of November 1, 1996, the Company is obligated to repay $272 of total
indebtedness during the remainder of 1996 and $22,045 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. As of November
1, 1996, the Company's total indebtedness had a weighted average maturity of 6.9
years and bore interest at a weighted average interest rate of 6.88% per annum.
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 foreseeable future.
<PAGE>
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 November 1, 1996, the Company maintained 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 8 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 nine months ended
September 30, 1996 and 1995. FFO (New Definition) increased $2,347, or 33.4%, to
$9,379 for the
<PAGE>
three months ended September 30, 1996 from $7,032 for the three months ended
September 30, 1995. This increase is primarily attributable to the Portfolio
Expansion. FFO (New Definition) decreased $2,556, or 12.5%, to $17,945 for the
nine months ended September 30, 1996 from $20,501 for the nine months ended
September 30, 1995. This decrease is primarily attributable to the nonrecurring
charge of $6,131 recorded in the second quarter of 1996 as a result of the
binding loan commitment obtained by the Company on June 5, 1996 partially offset
by the Portfolio Expansion.
TABLE 8 -- FUNDS FROM OPERATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30
-------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Old Definition) (New Definition) (Old Definition) (New Definition)
--------------- ---------------- ---------------- ----------------
Income before minority interests and
extraordinary item $ 4,175 $3,232 $4,175 $3,232 $3,282 $ 9,437 $ 3,282 $ 9,437
FFO adjustments:
Depreciation and amortization 4,579 3,917 3,603 2,639 13,578 11,261 9,971 7,532
Amortization of deferred financing costs
and interest rate protection contracts 779 1,105 779 1,105 3,028 3,311 3,028 3,311
Unconsolidated joint venture 822 56 822 56 1,664 221 1,664 221
adjustments(1) ------ ------ ------ ------ ------- -------- ------- --------
FFO before allocations to minority
interests and preferred shareholders $10,355 $8,310 $9,379 $7,032 $21,552 $24,230 $17,945 $20,501
======= ====== ====== ====== ======= ======= ======= =======
=============================================================================================================================
<FN>
Note:
(1) Includes net preferential partner distributions received from joint venture partnerships of $400, $400 and $162 for
the three months ended September 30, 1996, the nine months ended September 30, 1996 and the nine months ended September
30, 1995, respectively.
</FN>
</TABLE>
<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
None
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:
None
<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: November 12, 1996 /s/ Abraham Rosenthal
------------------------- ------------------------
Abraham Rosenthal
Chief Executive Officer
Date: November 12, 1996 /s/ Robert P. Mulreaney
-------------------------- -------------------------
Robert P. Mulreaney
Executive Vice President,
Chief Financial Officer
and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 9,602
<SECURITIES> 0
<RECEIVABLES> 6,500
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 46,281
<PP&E> 492,317
<DEPRECIATION> 52,525
<TOTAL-ASSETS> 486,073
<CURRENT-LIABILITIES> 26,278
<BONDS> 314,668
0
51
<COMMON> 134
<OTHER-SE> 144,942
<TOTAL-LIABILITY-AND-EQUITY> 486,073
<SALES> 0
<TOTAL-REVENUES> 63,112
<CGS> 0
<TOTAL-COSTS> 59,830<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,343
<INCOME-PRETAX> 4,680
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,680
<DISCONTINUED> 0
<EXTRAORDINARY> (1,017)<F2>
<CHANGES> 0
<NET-INCOME> 3,663
<EPS-PRIMARY> (1.17)
<EPS-DILUTED> 0
<FN>
<F1>Includes a non-recurring 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 intererst in
the amount of $3,263) on early extinguishment of debt.
</FN>
</TABLE>
