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, 1998
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
--------
PRIME RETAIL, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-1836258
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 East Pratt Street
Nineteenth Floor
Baltimore, Maryland 21202
- ---------------------------------------- ------------------------------
(Address of principal executive offices) (Zip Code)
(410) 234-0782
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(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 10, 1998, the issuer had outstanding 42,736,742 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 as of September 30, 1998 and
December 31, 1997. 1
Consolidated Statements of Operations for the three and
nine months ended September 30, 1998 and 1997. 2
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1998 and 1997. 3
Notes to the Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 2. Changes in Securities 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 26
Item 6. Exhibits or Reports on Form 8-K 27
Signatures 28
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
<TABLE>
Prime Retail, Inc.
Consolidated Balance Sheets
(in thousands, except share information)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, 1998 December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investment in rental property:
Land $ 204,878 $ 66,277
Buildings and improvements 1,702,986 779,191
Property under development 52,024 53,139
Furniture and equipment 11,851 6,175
---------- ----------
1,971,739 904,782
Accumulated depreciation (110,135) (82,033)
---------- ----------
1,861,604 822,749
Cash and cash equivalents 13,758 6,373
Restricted cash 43,432 41,736
Accounts receivable, net 9,846 9,745
Deferred charges, net 13,422 16,206
Due from affiliates, net 290 1,052
Investment in partnerships 7,739 3,278
Other assets 3,030 3,044
----------- ----------
Total assets $ 1,953,121 $ 904,183
=========== ==========
Liabilities and shareholders' equity
Bonds payable $ 32,900 $ 32,900
Notes payable 1,146,877 482,365
Accrued interest 7,542 3,767
Real estate taxes payable 14,728 4,639
Construction costs payable 2,948 5,849
Accounts payable and other liabilities 69,200 20,210
Dividends and distributions payable 22,899 -
---------- ----------
Total liabilities 1,297,094 549,730
Minority interests 38,265 9,925
Shareholders' equity:
Shares of preferred stock, 24,315,000 shares authorized:
10.5% Series A Senior Cumulative Preferred Stock, $0.01
par value (liquidation preference of $57,500), 2,300,000
shares issued and outstanding 23 23
8.5% Series B Cumulative Participating Convertible Preferred
Stock, $0.01 par value (liquidation preference of $195,703
and $74,545, respectively), 7,828,125 and 2,981,000 shares
issued and outstanding, respectively 78 30
Series C Cumulative Participating Convertible redeemable
Preferred Stock, $.01 par value (liquidation preference
$50,000), 3,636,363 shares issued and outstanding 36 36
Shares of common stock, 150,000,000 shares authorized:
Common stock, $0.01 par value, 42,598,445 and 27,294,951
shares issued and outstanding, respectively 426 273
Additional paid-in capital 743,406 398,188
Distributions in excess of net income (126,207) (54,022)
----------- ----------
Total shareholders' equity 617,762 344,528
----------- ----------
Total liabilities and shareholders' equity $ 1,953,121 $ 904,183
=========== =========
====================================================================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Prime Retail, Inc.
Consolidated Statements of Operations
(in thousands, except per share information)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Three months Nine months
ended September 30 ended September 30
--------------------------- ---------------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Base rents $ 47,516 $ 19,243 $ 98,646 $ 56,315
Percentage rents 1,960 1,008 3,999 2,398
Tenant reimbursements 21,338 8,731 45,315 26,649
Interest and other 2,373 2,567 7,499 7,562
-------- -------- -------- --------
Total revenues 73,187 31,549 155,459 92,924
Expenses
Property operating 16,836 6,840 35,461 20,495
Real estate taxes 5,380 2,449 11,600 7,238
Depreciation and amortization 16,509 6,644 34,267 19,515
Corporate general and administrative 2,105 1,464 5,553 4,083
Interest 20,086 9,079 39,399 27,951
Other charges 1,699 982 3,997 2,475
-------- -------- -------- --------
Total expenses 62,615 27,458 130,277 81,757
-------- -------- -------- --------
Income before loss on sale of real estate,
minority interests, and extraordinary item 10,572 4,091 25,182 11,167
Loss on sale of real estate - - (15,461) -
-------- -------- -------- --------
Income before minority interests and
extraordinary item 10,572 4,091 9,721 11,167
Income allocated to minority interests (214) (2,540) (2,456) (7,803)
-------- -------- -------- --------
Income before extraordinary item 10,358 1,551 7,265 3,364
Extraordinary item, loss on early
extinguishment of debt - (2,061) - (2,061)
-------- -------- -------- --------
Net income (loss) 10,358 (510) 7,265 1,303
Income allocated to preferred shareholders 6,741 3,094 17,648 9,280
-------- -------- -------- --------
Net income (loss) applicable to common shares $ 3,617 $(3,604) $(10,383) $(7,977)
======== ======== ======== ========
Earnings per common share - basic
and diluted:
Income (loss) before extraordinary item $ 0.09 $ (0.08) $ (0.31) $ (0.36)
Extraordinary item - (0.11) - (0.12)
-------- -------- -------- --------
Net income (loss) $ 0.09 $ (0.19) $ (0.31) $ (0.48)
======== ======== ======== ========
Weighted average common shares outstanding 42,314 19,159 33,211 16,458
======== ======== ======== ========
Distributions declared per common share $ 0.295 $ 0.295 $ 1.385 $ 0.885
======== ======== ======== ========
====================================================================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Prime Retail, Inc.
Consolidated Statements of Cash Flows
(in thousands)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Nine months ended September 30
-----------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 7,265 $ 1,303
Adjustments to reconcile net income to
net cash provided by operating activities:
Income allocated to minority interests 2,456 7,803
Extraordinary item, loss on early extinguishment of debt - 2,061
Loss on sale of real estate 15,461 -
Depreciation 33,413 18,164
Amortization of deferred financing costs and
interest rate protection contracts 2,199 2,861
Amortization of leasing commissions 854 1,351
Provision for uncollectible accounts receivable 788 748
Changes in operating assets and liabilities:
Increase in accounts receivable (1,656) (3,199)
Decrease in due from affiliates, net 868 895
(Increase) decrease in other assets (2,015) 2,234
Increase (decrease) in accrued interest 2,553 (180)
Increase (decrease) in accounts payable and other liabilities (9,668) 517
------- -------
Net cash provided by operating activities 52,518 34,558
Investing Activities
Proceeds from sale of Prime Transferred Properties 26,015 -
Acquisition of Horizon, net of cash acquired and spin-off of HGP (35,124) -
Purchase of buildings and improvements (42,916) (13,258)
Increase in property under development (70,821) (32,659)
Acquisition of outlet centers - (60,819)
------- -------
Net cash used in investing activities (122,846) (106,736)
Financing Activities
Net proceeds from issuance of common and preferred stock - 193,774
Proceeds from notes payable 421,970 91,767
Principal repayments on notes payable (266,722) (162,770)
Deferred financing fees (3,247) (477)
Distributions and dividends paid (60,143) (22,460)
Distributions to minority interests (14,145) (7,803)
------- -------
Net cash provided by financing activities 77,713 92,031
------- -------
Increase in cash and cash equivalents 7,385 19,853
Cash and cash equivalents at beginning of period 6,373 3,924
------- -------
Cash and cash equivalents at end of period $ 13,758 $ 23,777
======= =======
====================================================================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Prime Retail, Inc.
Consolidated Statements of Cash Flows (continued)
(in thousands)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Supplemental Disclosure of Noncash Investing and Financing Activities:
The following assets and liabilities were acquired and sold in connection with the consummation of the
Merger Transactions on June 15, 1998:
Acquisition of Horizon, net of spin-off of HGP:
Fair value of assets acquired $ 1,007,329
Cash paid, net of cash and cash equivalents acquired (35,124)
Common shares issued (214,282)
Common units of partnership interest issued (56,023)
Series B convertible preferred shares issued (118,735)
-----------
Fair value of liabilities assumed $ 583,165
===========
Disposition of Prime Transferred Properties:
Book value of assets disposed $ 42,201
Cash received (26,015)
Loss on sale (15,461)
-----------
Liabilities disposed $ 725
===========
====================================================================================================================================
See accompanying notes to financial statements.
</TABLE>
<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 Inc.'s
(the "Company") annual report on Form 10-K for the year ended December 31, 1997.
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 operational 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 prior year financial statement amounts and
related footnote information have been reclassified to conform with the current
year presentation.
Note 2 -- Earnings Per Share
On December 31, 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share" which specifies the method of
computation, presentation, and disclosure for earnings per share ("EPS"). SFAS
No. 128 requires the presentation of basic EPS and diluted EPS. Basic EPS is
calculated by dividing net income available to common shareholders by the
weighted average number of shares outstanding during the period. Diluted EPS
includes the potentially dilutive effect, if any, which would occur if
outstanding (i) options to purchase Common Stock were exercised, (ii) Common
Units were converted into shares of Common Stock, (iii) shares of Series C
Preferred Stock and Units were converted into shares of Common Stock, and (iv)
shares of Series B Convertible Preferred Stock were converted into shares of
Common Stock. For all periods presented, the effect of these exercises and
conversions was anti-dilutive and, therefore, diluted EPS is equivalent to basic
EPS.
<PAGE>
Note 3 -- Minority Interests
In prior periods, cash distributions and losses allocated to minority interests
reduced the minority interests balance to zero. After reducing the minority
interests balance to zero, additional distributions and losses of $3,369 and
$7,272 incurred during the nine months ended September 30, 1998 and 1997,
respectively, that were allocable to minority interests were allocated to common
shareholders. The cumulative amount of distributions and losses that were
allocable to minority interests that were allocated to common shareholders at
September 30, 1998 was $15,565.
As of September 30, 1998 and 1997, loans to certain limited partners, who also
are executive officers of the Company, aggregating $2,375 and $4,750,
respectively, were reported as a reduction in minority interests in the
Consolidated Balance Sheets.
Note 4 -- Business Combination
On June 15, 1998, the merger and other transactions (collectively, the "Merger
Transactions") as set forth in the agreement and plan of merger (the "Merger
Agreement") between the Company and Horizon Group, Inc. ("Horizon") were
consummated for an aggregate consideration of approximately $1,083,100,
including liabilities assumed and related transaction costs.
Pursuant to the terms of the Merger Agreement, the Company acquired (i) all of
the outstanding shares of common stock of Horizon at an exchange ratio of 0.20
of a share of the Company's Series B Convertible Preferred Stock and 0.597 of a
share of the Company's Common Stock for each share of common stock of Horizon,
and (ii) all of the outstanding limited partnership units of Horizon/Glen Outlet
Centers Limited Partnership ("Horizon Partnership") at an exchange ratio of
0.9193 of a Common Unit of partnership interest in the Operating Partnership. A
total of 4,846,325 shares of Series B Convertible Preferred Stock and 14,466,329
shares of Common Stock were issued by the Company to the shareholders of Horizon
and 3,782,121 Common Units were issued by the Operating Partnership to the
limited partners of Horizon Partnership.
Immediately prior to the merger, Horizon Partnership contributed 13 of its 35
centers to Horizon Group Properties, L.P., of which Horizon Group Properties,
Inc. ("HGP"), a subsidiary of Horizon, is the sole general partner. HGP was
spun-off from the Company on June 15, 1998. The remaining 22 outlet centers of
Horizon were integrated into the Company's existing portfolio. On June 19, 1998,
all of the common equity of HGP was distributed to the convertible preferred and
common shareholders and unitholders of the Company and its Operating Partnership
and the shareholders and limited partners of Horizon and Horizon Partnership
based on their ownership in the Company immediately following consummation of
the merger. One share of common stock of HGP was distributed for every 20 shares
of Common Stock and Series C Convertible Preferred Stock of the Company and for
every 20 Common Units of the Operating Partnership. Additionally, approximately
1.196 shares of the common stock of HGP were distributed for every 20 shares of
Series B Convertible Preferred Stock of the Company.
In connection with the Merger Transactions, the Company sold Indiana Factory
Shops and Nebraska Crossing Factory Shops (collectively, the "Prime Transferred
Properties") to HGP for an aggregate consideration of $26,015, resulting in a
loss of $15,461. Proceeds from the sale of the Prime Transferred Properties were
used to repay indebtedness associated with the Horizon properties.
Concurrent with the closing of the merger, a special cash distribution was made
aggregating $21,871 consisting of $0.50 per share/unit to holders of Common
Stock, Series C Preferred Securities and Common Units and $0.60 per share to
holders of Series B Convertible Preferred Stock. Shareholders of Horizon and
limited partners of Horizon Partnership did not participate in these
distributions.
<PAGE>
The merger has been accounted for using the purchase method of accounting and
the purchase price of $1,083,100 was allocated to the assets acquired and the
liabilities assumed based on estimates of their respective fair values. Certain
assumptions were made which management of the Company believes are reasonable.
The Company expects to finalize the preliminary purchase price allocation before
the end of 1998. The final allocation is not expected to differ materially from
the allocation made at September 30, 1998.
The operating results of those properties acquired have been included in the
Company's consolidated results of operations commencing on the date of
acquisition. The operating results of the Prime Transferred Properties have been
included in the Company's consolidated results of operations through the date of
disposition.
The following unaudited pro forma summary financial information gives effect to
the Merger Transactions as if they had occurred on January 1, 1997.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Nine months ended September 30
------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total revenues $208,807 $195,505
======== ========
Net income from continuing operations $ 27,969 $ 21,786
======== ========
Net income applicable to common shares $ 7,747 $ 3,236
======== ========
Earnings per common share - basic and diluted $ 0.18 $ 0.10
======== ========
Weighted average common shares outstanding 41,954 30,924
======== ========
====================================================================================================================================
</TABLE>
These unaudited pro forma results are presented for comparative purposes only
and are not necessarily indicative of what the Company's actual consolidated
results of operations would have been for the periods presented if the
Transactions had been completed at January 1, 1997, nor do they purport to
represent the Company's future consolidated results of operations.
Note 5 -- Notes Payable
On September 25, 1998, the Company closed on an unsecured $40,000 revolving loan
(the "Revolving Loan") with a financial institution. The Revolving Loan (i)
bears interest equal to 30-day LIBOR plus 1.75%, (ii) requires monthly
interest-only payments, and (iii) matures on September 11, 2001. At September
30, 1998, the Revolving Loan had an outstanding principal balance of $28,300.
The Revolving Loan requires compliance with certain financial loan covenants
including those relating to the Company's (i) total outstanding variable
indebtedness, (ii) total outstanding indebtedness to market value, as defined,
(iii) consolidated net worth, as defined, and (iv) debt service coverage ratio.
<PAGE>
On June 15, 1998, the Company closed on $292,000 of loan facilities with Nomura
Asset Capital Corporation. The transaction provided (i) a $180,000 nonrecourse
permanent loan (the "Permanent Loan") and (ii) a $112,000 full recourse bridge
loan of which $95,000 was funded (the "Bridge Loan"). The Permanent Loan is (i)
collateralized by first mortgages on four factory outlet centers, (ii) bears a
fixed rate of interest of 6.99%, (iii) requires monthly principal and interest
payments pursuant to an approximate 26-year amortization schedule, and (iv)
matures on June 15, 2008. The Bridge Loan is (i) collateralized by first
mortgages on six factory outlet centers, (ii) bears a variable rate of interest
equal to 30-day LIBOR plus 1.35%, (iii) requires monthly interest-only payments,
and (iv) matures on June 15, 2001.
As of November 11, 1998, the Company is a guarantor or otherwise obligated with
respect to $39,570 of the indebtedness of HGP and its affiliates, including
$10,000 of obligations under HGP's $108,205 three-year secured credit facility.
On April 1, 1998, Horizon consummated an agreement with Castle & Cooke
Properties, Inc. which released Horizon from its forward obligations under its
long-term lease of the Dole Cannery outlet center in Honolulu, Hawaii, in
connection with the formation of a joint venture with certain affiliates of
Castle & Cooke, Inc. ("Castle & Cooke") to operate such property. Under the
terms of the agreement, Castle & Cooke Properties, Inc., the landlord of the
project and an affiliate of Castle & Cooke, released Horizon from any continuing
obligations under the lease, which expires in 2045, in exchange for Horizon's
conveyance to the joint venture of its rights and obligations under such lease.
The agreement also provided that Horizon transfer to such joint venture
substantially all of Horizon's economic interest in its outlet center in Lake
Elsinore, California together with legal title to vacant property located
adjacent to the center. As of September 30, 1998, the Company holds a small
minority interest in the joint venture but has no obligation or commitment with
respect to the post-closing operations of the Dole Cannery project. However, the
Company is legally obligated for $30,864 of mortgage indebtedness outstanding at
September 30, 1998 which is secured by a first mortgage on the Lake Elsinore
outlet center. In addition, Castle & Cooke has provided the Company a guaranty,
without limitation, of the obligations relating to such mortgage indebtedness.
On March 18, 1998, the Company obtained from a financial institution a
commitment for a construction mortgage loan (the "Construction Mortgage Loan")
relating to Phase I of Prime Outlets at Hagerstown ("Hagerstown") in an amount
not to exceed $21,600 which was subsequently increased to $32,860 on October 2,
1998 as a result of obtaining a commitment for construction financing on Phase
II. The Construction Mortgage Loan (i) bears a variable interest rate at 30-day
LIBOR plus 1.50%, (ii) matures on June 1, 2004, and (iii) requires monthly
interest-only payments. The Construction Mortgage Loan is collateralized by a
first mortgage on Hagerstown. At September 30, 1998, $15,969 was outstanding on
the Construction Mortgage Loan.
<PAGE>
Note 6 -- 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 the losses, if any, resulting from such matters, including the matter
described below, will not have a material adverse effect on the consolidated
financial statements of the Company.
The Company is defendant in a lawsuit filed on July 27, 1998 in the U.S.
District Court for the Central District of California whereby the plaintiff
alleges that the Company and its related entities overcharged tenants for common
area maintenance expenditures. The outcome of, and the ultimate liability of the
Company, if any, from, this lawsuit cannot currently be predicted. Management
believes that the Company has acted properly and intends to defend this lawsuit
vigorously.
In the Company's previously filed Form 10-Q for the quarter ended March 31,
1998, it reported that on December 10, 1997 in the Circuit Court for Muskegon
County, Michigan (the "Court"), a shareholder of Horizon filed a purported class
action lawsuit against Horizon, the Company, and certain directors and former
directors of Horizon. The substantive allegations claim that Horizon's directors
breached their fiduciary duties to Horizon's shareholders in approving the
merger of Horizon and the Company and that the consideration to be paid to
Horizon's shareholders in connection with the merger was unfair and inadequate.
On September 8, 1998, a hearing was held before Judge James M. Graves of the
Court. At the hearing, the defendants, including the Company, continued to deny
any wrongdoing and liability. The Court approved the settlement set forth in the
Stipulation of Settlement (the "Stipulation") previously executed by the parties
to the lawsuit on July 21, 1998 and found that the settlement was, in all
respects, fair, reasonable, and adequate, and dismissed with prejudice the
litigation against the defendants. The settlement required that the Company pay
legal expenses of $325.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Amounts in thousands, except share, unit and square foot information)
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. The
Company's operations are conducted through Prime Retail, L.P. (the "Operating
Partnership"). The Company controls the Operating Partnership as its sole
general partner and is dependent upon the distributions or other payments from
the Operating Partnership to meet its financial obligations. 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. Actual results may differ materially from those reflected in such
forward-looking statements because of various 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 acquisition and development activities; risks related to the retail
industry in which the Company's 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 acquisitions, such as the lack of predictability with
respect to financial returns; 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.
Merger with Horizon Group, Inc.
On June 15, 1998, the merger and other transactions (collectively, the "Merger
Transactions") between the Company and Horizon Group, Inc. ("Horizon") were
consummated for an aggregate consideration of approximately $1,083,100,
including liabilities assumed and related transaction costs. The merger has been
accounted for using the purchase method of accounting and the purchase price of
$1,083,100 was allocated to the assets acquired and the liabilities assumed
based on estimates of their respective fair values. Accordingly, the operating
results of the 22 properties acquired from Horizon have been included in the
Company's consolidated results of operations commencing on June 15, 1998. See
"Liquidity and Capital Resources - Business Combination" for further
information.
Portfolio Growth
The Company has grown by developing and acquiring factory outlet centers and
expanding certain of its existing factory outlet centers. As summarized in
TABLE 1, the Company's factory outlet portfolio consisted of 50 operating
factory outlet centers totaling 14,029,000 square feet of gross leasable area
("GLA") at September 30, 1998, compared to 24 operating factory outlet centers
totaling 6,316,000 square feet of GLA at September 30, 1997.
<PAGE>
During the nine months ended September 30, 1998, the Company opened two new
factory outlet centers and six expansions to existing factory outlet centers
totaling 612,000 square feet of GLA in the aggregate. In connection with the
Merger Transactions, the Company acquired and integrated 22 of Horizon's factory
outlet centers into its existing portfolio adding 6,626,000 square feet of GLA
in the aggregate. Additionally, in connection with the Merger Transactions, the
Company sold two factory outlet centers to Horizon Group Properties, Inc.
("HGP") totaling 426,000 square feet of GLA. During the period October 1, 1997
through December 31, 1997, the Company purchased four factory outlet centers
totaling 863,000 square feet of GLA and opened an expansion to an existing
factory outlet center totaling 38,000 square feet of GLA.
The significant increase in the number of the Company's operating properties and
total GLA since September 30, 1997 are collectively referred to as the
"Portfolio Expansion and the Horizon Merger".
<PAGE>
<TABLE>
TABLE 1 - Portfolio of Properties as of September 30, 1998
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Grand GLA Percentage
Factory Outlet Centers Phase Opening Date (Sq. Ft.) Leased(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Outlets at Niagara Falls USA (2) - Niagara Falls, New York....... I July 1992 300,000 100%
II August 1995 234,000 89
------- ----
534,000 95
Prime Outlets at Kittery (3) - Kittery Maine........................... I April 1984 25,000 100
II May 1984 78,000 99
III August 1989 18,000 99
IV May 1998 10,000 100
------- ----
131,000 99
Prime Outlets at Fremont (4) - Fremont, Indiana........................ I October 1985 118,000 100
II November 1993 51,000 92
III October 1994 60,000 100
------- ----
229,000 98
Prime Outlets at Birch Run (4) - Birch Run, Michigan................... I-XIV Various 583,000 99
XV June 1996 6,000 100
XVII June 1996 2,000 100
XVII 1997 15,000 99
XVIII 1997 118,000 100
------- ----
724,000 99
Prime Outlets at Latham (3) - Latham, New York......................... I August 1987 43,000 100
Prime Outlets at Michigan City (4) - Michigan City, Michigan........... I November 1987 199,000 100
II May 1988 130,000 97
III July 1991 36,000 85
IV July 1994 42,000 100
V December 1994 26,000 98
VI May 1995 58,000 99
------- ----
491,000 98
Prime Outlets at Williamsburg (4) - Williamsburg, Virginia............. I April 1988 67,000 99
II November 1988 60,000 100
III October 1990 49,000 100
IV 1995 98,000 100
------- ----
274,000 100
Prime Outlets at Kenosha (4) - Kenosha, Wisconsin...................... I September 1988 89,000 100
II July 1989 65,000 97
III May 1990 115,000 99
------- ----
269,000 99
Prime Outlets at Silverthorne (4) - Silverthorne, Colorado............. I November 1988 95,000 92
II November 1990 75,000 98
III November 1993 88,000 93
------- ----
258,000 94
Prime Outlets at Edinburgh (4) - Edinburgh, Indiana.................... I 1988 156,000 100
II November 1994 142,000 100
------- ----
298,000 100
Prime Outlets at Burlington (4) - Burlington, Washington .............. I May 1989 89,000 100
II October 1989 36,000 100
III April 1993 49,000 100
------- ----
174,000 100
</TABLE>
<PAGE>
<TABLE>
TABLE 1 - Portfolio of Properties as of September 30, 1998
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Grand GLA Percentage
Factory Outlet Centers Phase Opening Date (Sq. Ft.) Leased(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Outlets at Queenstown (4) - Queenstown, Maryland................. I June 1989 67,000 100%
II June 1990 55,000 99
III January 1991 16,000 97
IV June 1992 14,000 97
V August 1993 69,000 100
------- ----
221,000 99
Prime Outlets at Hillsboro (4) - Hillsboro, Texas...................... I October 1989 95,000 90
II January 1992 101,000 100
III May 1995 163,000 100
------- ----
359,000 97
Prime Outlets at Oshkosh (4) - Oshkosh, Wisconsin...................... I November 1989 215,000 95
II July 1991 45,000 99
------- ----
260,000 96
Prime Outlets at Warehouse Row (5)- Chattanooga, Tennessee............. I November 1989 95,000 98
II August 1993 26,000 94
------- ----
121,000 95
Prime Outlets at Gilroy (4) - Gilroy, California....................... I January 1990 94,000 100
II August 1991 109,000 100
III October 1992 137,000 95
IV July 1994 170,000 99
V November 1995 69,000 100
------- ----
579,000 99
Prime Outlets at Perryville (4) - Perryville, Maryland................. I June 1990 148,000 98
Prime Outlets at Sedona (6) - Sedona, Arizona ......................... I August 1990 82,000 99
Prime Outlets at San Marcos - San Marcos, Texas........................ I August 1990 177,000 98
II August 1991 70,000 100
III August 1993 117,000 97
IIIB November 1994 20,000 91
IIIC November 1995 35,000 100
IIID May 1998 18,000 100
------- ----
437,000 98
Prime Outlets at Anderson (2) - Anderson, California................... I August 1990 165,000 98
Prime Outlets at Post Falls (6) - Post Falls, Idaho ................... I July 1991 111,000 85
II July 1992 68,000 86
------- ----
179,000 85
Prime Outlets at Ellenton - Ellenton, Florida.......................... I October 1991 187,000 100
II August 1993 123,000 100
III October 1996 30,000 100
------- ----
340,000 100
Prime Outlets at Morrisville - Raleigh - Durham, North Carolina........ I October 1991 181,000 100
II July 1996 6,000 100
------- ----
187,000 100
Prime Outlets at Naples - Naples/Marco Island, Florida................. I December 1991 94,000 95
II December 1992 32,000 100
III March 1998 20,000 98
------- ----
146,000 96
</TABLE>
<PAGE>
<TABLE>
TABLE 1 - Portfolio of Properties as of September 30, 1998
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Grand GLA Percentage
Factory Outlet Centers Phase Opening Date (Sq. Ft.) Leased(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Outlets at Conroe (4) - Conroe, Texas............................ I January 1992 93,000 92%
II June 1994 163,000 96
III October 1994 26,000 87
------- ----
282,000 93
Prime Outlets at Woodbury (4) - Woodbury, Minnesota.................... I July 1992 129,000 93
II November 1993 100,000 93
III August 1994 21,000 100
------- ----
250,000 94
Prime Outlets at Calhoun (4) - Calhoun, Tennessee...................... I October 1992 123,000 100
II October 1995 131,000 100
------- ----
254,000 100
Prime Outlets at Castle Rock - Castle Rock, Colorado................... I November 1992 181,000 100
II August 1993 94,000 97
III November 1993 95,000 96
IV August 1997 110,000 97
------- ----
480,000 99
Prime Outlets at Bend (6) - Bend, Oregon............................... I December 1992 97,000 97
II September 1998 35,000 93
------- ----
132,000 96
Prime Outlets at Jeffersonville II (4) - Jeffersonville, Ohio.......... I March 1993 126,000 76
II August 1993 123,000 70
III October 1994 65,000 100
------- ----
314,000 79
Prime Outlets at Jeffersonville I - Jeffersonville, Ohio................ I July 1993 186,000 96
II November 1993 100,000 100
IIB November 1994 13,000 64
IIIA August 1996 35,000 100
IIIB March 1997 73,000 94
------- ----
407,000 96
Prime Outlets at Gainesville - Gainesville, Texas...................... I August 1993 210,000 88
II November 1994 106,000 100
------- ----
316,000 92
Prime Outlets at Loveland - Loveland, Colorado......................... I May 1994 139,000 100
II November 1994 50,000 100
III May 1995 114,000 100
IV May 1996 25,000 100
------- ----
328,000 100
Prime Outlets at Oxnard (7) - Oxnard, California....................... I June 1994 148,000 95
Prime Outlets at Grove City - Grove City, Pennsylvania................. I August 1994 235,000 100
II November 1994 95,000 100
III November 1995 85,000 99
IV November 1996 18,000 99
------- ----
533,000 100
Prime Outlets at Huntley - Huntley, Illinois........................... I August 1994 192,000 95
II November 1995 90,000 99
------- ----
282,000 96
Prime Outlets at Florida City - Florida City, Florida.................. I September 1994 208,000 95
Prime Outlets at Pismo Beach (4) - Pismo Beach, California............. I November 1994 148,000 98
</TABLE>
<PAGE>
<TABLE>
TABLE 1 - Portfolio of Properties as of September 30, 1998
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Grand GLA Percentage
Factory Outlet Centers Phase Opening Date (Sq. Ft.) Leased(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Outlets at Tracy (4) - Tracy, California........................ I November 1994 153,000 100%
Prime Outlets at Vero Beach (4) - Vero Beach, Florida.................. I November 1994 210,000 99
II August 1995 116,000 92
------- -----
326,000 96
Prime Outlets at Waterloo (4) - Waterloo, New York..................... I March 1995 208,000 100
II September 1996 115,000 100
III April 1997 68,000 90
------- -----
391,000 98
Prime Outlets at Odessa - Odessa, Missouri............................. I July 1995 191,000 100
II November 1996 105,000 61
------- -----
296,000 86
Prime Outlets at Darien (8) - Darien, Georgia.......................... I July 1995 238,000 85
IIA November 1995 49,000 99
IIB July 1996 20,000 100
------- -----
307,000 88
Prime Outlets at New River (9) - Phoenix, Arizona...................... I September 1995 217,000 96
II September 1996 109,000 93
------- -----
326,000 95
Prime Outlets at Gulfport (10) - Gulfport, Mississippi................. I November 1995 228,000 99
IIA November 1996 40,000 93
IIB November 1997 38,000 100
------- -----
306,000 98
Prime Outlets at Lodi (11) - Burbank, Ohio............................. I November 1996 205,000 97
IIA May 1998 33,000 78
------- -----
238,000 94
Prime Outlets at Gaffney - Gaffney, South Carolina..................... I November 1996 235,000 99
II July 1998 70,000 81
------- -----
305,000 95
Prime Outlets at Lee (4) - Lee, Massachusetts.......................... I June 1997 224,000 99
Prime Outlets at Lebanon - Lebanon, Tennessee......................... I April 1998 208,000 92
Prime Outlets at Hagerstown - Hagerstown, Maryland..................... I August 1998 218,000 96
------- -----
Total Factory Outlet Centers (12) 14,029,000 96%
========== =====
====================================================================================================================================
</TABLE>
Notes:
(1) Percentage reflects fully executed leases as of September 30, 1998 as a
percent of square feet of GLA.
(2) The Company acquired this factory outlet center on December 2, 1997
from an unrelated third party.
(3) The Company acquired this factory outlet center on October 29, 1997 from an
unrelated third party.
(4) The Company acquired this factory outlet center on June 15, 1998 as a result
of its merger with Horizon.
<PAGE>
(5) 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. An
unrelated third party 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. 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
is not included in this table and such space was 74% leased as of
September 30, 1998.
(6) The Company acquired this factory outlet center on February 13, 1997
from an unrelated third party.
(7) On February 7, 1997, the Company purchased an additional 20% interest
from a joint venture partner, increasing the Company's ownership interest
in this property to 50%.
(8) The Company operates this property pursuant to a long-term ground lease
under which the Company receives the economic benefit of a 100% ownershi
interest.
(9) The Company owns 50% of this factory outlet center in a joint venture
partnership with an unrelated third party.
(10)The real property on which this outlet center is located is subject to a
long-term ground lease. The Company receives the economic benefit of a
100% ownership interest.
(11)On September 2, 1997, the Company purchased its joint venture partner's
25% partnership interest in Buckeye Factory Shops Limited Partnershi
and now owns 100% of this factory outlet center.
(12)The Company also owns three community centers not included in this table
containing 424,000 square feet of GLA in the aggregate that were 88% leased
as of September 30, 1998.
Results of Operations
Comparison of the three months ended September 30, 1998 to the three months
ended September 30, 1997
Summary
The Company reported net income (loss) of $10,358 and $(510) for the three
months ended September 30, 1998 and 1997, respectively. The 1997 results include
a third quarter extraordinary loss on the early extinguishment of debt of
$2,061. For the three months ended September 30, 1998, the net income applicable
to common shareholders was $3,617, or $0.09 per common share on a basic and
diluted basis. For the three months ended September 30, 1997, the net loss
applicable to common shareholders was $3,604, or $0.19 per common share on a
basic and diluted basis.
Revenues
Total revenues were $73,187 for the three months ended September 30, 1998
compared to $31,549 for the three months ended September 30, 1997, an increase
of $41,638, or 132.0%. Base rents increased $28,273, or 146.9%, in 1998 compared
to 1997. Straight-line rents (included in base rents) were $713 and $140 for the
three months ended September 30, 1998 and 1997, respectively. These increases
are primarily due to the Portfolio Expansion and the Horizon Merger.
Percentage rents, which represent rents based on a percentage of sales volume
above a specified threshold, increased $952, or 94.4%, during the three months
ended September 30, 1998 compared to the same period in 1997. This increase was
attributable to the Portfolio Expansion and the Horizon Merger. Tenant
reimbursements, which represent the contractual recovery from tenants of certain
operating expenses, increased by $12,607, or 144.4%, during the three months
ended September 30, 1998 over the same period in 1997. This increase was
primarily due to the Portfolio Expansion and the Horizon Merger.
Interest and other income decreased by $194, or 7.6%, to $2,373 during the three
months ended September 30, 1998 as compared to $2,567 for the three months ended
September 30, 1997. The decrease reflects a reduction in interest income of $254
partially offset by higher other ancillary income of $60. The reduction in
interest income was primarily the result of the use of a portion of the
Company's expansion loan escrow account to fund certain of its development
activities during 1997 and 1998. The expansion loan escrow account is included
in restricted cash in the Consolidated Balance Sheets.
<PAGE>
Expenses
Property operating expenses increased by $9,996, or 146.1%, to $16,836 for the
three months ended September 30, 1998 compared to $6,840 for the same period in
1997. Real estate taxes increased by $2,931, or 119.7%, to $5,380 for the three
months ended September 30, 1998, from $2,449 in the same period for 1997. The
increases in property operating expenses and real estate taxes were primarily
due to the Portfolio Expansion and the Horizon Merger. As shown in TABLE 2,
depreciation and amortization expense increased by $9,865, or 148.5%, to $16,509
from the depreciation and amortization of assets associated with the Portfolio
Expansion and the Horizon Merger.
<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
---------------------------
1998 1997
- --------------------------------------------------------------------------------
Buildings and improvements $ 9,440 $3,423
Land improvements 899 715
Tenant improvements 5,611 1,872
Furniture and fixtures 343 214
Leasing commissions(1) 216 420
------- -----
Total $16,509 $6,644
======= ======
================================================================================
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
--------------------
1998 1997
- --------------------------------------------------------------------------------
Interest incurred $20,950 $9,265
Interest capitalized (1,734) (1,123)
Amortization of deferred financing costs 545 589
Amortization of interest rate protection contracts 325 348
------- -----
Total $20,086 $9,079
======= ======
================================================================================
As shown in TABLE 3, interest expense for the three months ended September 30,
1998 increased by $11,007, or 121.2%, to $20,086 compared to $9,079 for the same
period in 1997. This increase reflects higher interest incurred of $11,685
partially offset by (i) an increase in the amount of interest capitalized in
connection with development projects of $611 and (ii) a decrease in amortization
of deferred financing costs and interest rate protection contracts of $67.
The increase in interest incurred is primarily attributable to an increase of
approximately $656,098 in the Company's average debt outstanding during the
three months ended September 30, 1998 compared to the same period in 1997
partially offset by a slight decrease in the weighted average interest rate for
the three months ended September 30, 1998 compared to the same period in 1997.
The weighted average interest rates were 7.15% and 7.28% for the 1998 and 1997
periods, respectively.
Other charges increased by $717, or 73.0%, to $1,699. This increase reflects
selling and marketing expenses of $649 associated with the operation of an
outlet store known as Designer Connection and other ancillary charges of $68.
<PAGE>
In connection with re-leasing space to new merchants, the Company incurred
$1,055 and $100 in capital expenditures during the three months ended September
30, 1998 and 1997, respectively.
Comparison of nine months ended September 30, 1998 to nine months ended
September 30, 1997
Summary
The Company reported net income of $7,265 and $1,303 for the nine months ended
September 30, 1998 and 1997, respectively. The 1998 results include a second
quarter loss on the sale of real estate of $15,461 in connection with the Merger
Transactions. The 1997 results include a third quarter extraordinary loss on the
early extinguishment of debt of $2,061. For the nine months ended September 30,
1998, the net loss applicable to common shareholders was $10,383, or $0.31 per
common share on a basic and diluted basis. For the nine months ended September
30, 1997, the net loss applicable to common shareholders was $7,977, or $0.48
per common share on a basic and diluted basis.
Revenues
Total revenues were $155,459 for the nine months ended September 30, 1998
compared to $92,924 for the nine months ended September 30, 1997, an increase of
$62,535, or 67.3%. Base rents increased $42,331, or 75.2%, in 1998 compared
to 1997. Straight-line rents (included in base rents) were $974 and $392 for the
nine months ended September 30, 1998 and 1997, respectively. These increases are
primarily due to the Portfolio Expansion and the Horizon Merger.
Percentage rents, which represent rents based on a percentage of sales volume
above a specified threshold, increased $1,601, or 66.8%, during the nine months
ended September 30, 1998 compared to the same period in 1997. This increase was
attributable to the Portfolio Expansion and the Horizon Merger. For the nine
months ended September 30, 1998, same-space sales in centers owned by the
Company decreased by 0.8% compared to the same period in 1997. For the nine
months ended September 30, 1998, same-store sales decreased 2.0% compared to the
same period in 1997. Tenant reimbursements, which represent the contractual
recovery from tenants of certain operating expenses, increased by $18,666, or
70.0%, during the nine months ended September 30, 1998 over the same period in
1997. This increase was primarily due to the Portfolio Expansion and the Horizon
Merger.
Interest and other income decreased by $63, or 0.8%, to $7,499 during the nine
months ended September 30, 1998 as compared to $7,562 for the nine months ended
September 30, 1997. The decrease reflects reductions in (i) interest income of
$1,131 and (ii) all other ancillary income of $132. Partially offsetting these
reductions were higher (i) push cart, temporary tenant, and late fee income of
$816, and (ii) lease termination income of $384. The reduction in interest
income was primarily the result of the use of a portion of the Company's
expansion loan escrow account to fund certain of its development activities
during 1997 and 1998. The expansion loan escrow account is included in
restricted cash in the Consolidated Balance Sheets.
Expenses
Property operating expenses increased by $14,966, or 73.0%, to $35,461 for the
nine months ended September 30, 1998 compared to $20,495 for the same period
in 1997. Real estate taxes increased by $4,362, or 60.3%, to $11,600 for the
nine months ended September 30, 1998, from $7,238 in the same period for 1997.
The increases in property operating expenses and real estate taxes are primarily
due to the Portfolio Expansion and the Horizon Merger. As shown in TABLE 4,
depreciation and amortization expense increased by $14,752, or 75.6%, to $34,267
for the nine months ended September 30, 1998, compared to $19,515 for 1997. This
increase results from the depreciation and amortization of assets associated
with the Portfolio Expansion and the Horizon Merger.
<PAGE>
TABLE 4 - Components of Depreciation and Amortization Expense
The components of depreciation and amortization expense are summarized as
follows:
- --------------------------------------------------------------------------------
Nine months ended
September 30
---------------------------
1998 1997
- --------------------------------------------------------------------------------
Buildings and improvements $19,433 $10,131
Land improvements 2,618 2,069
Tenant improvements 10,429 5,348
Furniture and fixtures 933 616
Leasing commissions(1) 854 1,351
------- -------
Total $34,267 $19,515
======= =======
================================================================================
Note:
(1) In accordance with generally accepted accounting principles ("GAAP"),
leasing commissions are classified as intangible assets. Therefore, the
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
-------------------
1998 1997
- --------------------------------------------------------------------------------
Interest incurred $41,711 $28,032
Interest capitalized (4,511) (2,942)
Amortization of deferred financing costs 1,193 1,818
Amortization of interest rate protection contracts 1,006 1,043
------- -------
Total $39,399 $27,951
======= =======
================================================================================
As shown in TABLE 5, interest expense for the nine months ended September 30,
1998 increased by $11,448, or 41.0%, to $39,399 compared to $27,951 for the same
period in 1997. This increase reflects higher interest incurred of $13,679
partially offset by (i) an increase in the amount of interest capitalized in
connection with development projects of $1,569 and (ii) a decrease in
amortization of deferred financing costs and interest rate protection contracts
of $662.
The increase in interest incurred is primarily attributable to an increase of
approximately $257,025 in the Company's average debt outstanding during the nine
months ended September 30, 1998 compared to the same period in 1997 partially
offset by a slight decrease in the weighted average interest rate for the nine
months ended September 30, 1998 compared to the same period in 1997. The
weighted average interest rates were 7.19% and 7.24% for the 1998 and 1997
periods, respectively.
Other charges increased by $1,522, or 61.5%, to $3,997. This increase reflects
selling and marketing expenses of $1,494 associated with the operation of outlet
store known as Designer Connection and other ancillary charges of $28.
<PAGE>
In connection with re-leasing space to new merchants, the Company incurred
$1,496 and $241 in capital expenditures during the nine months ended September
30, 1998 and 1997, respectively.
Loss on Sale of Real Estate
In connection with the closing of its merger with Horizon on June 15, 1998, the
Company sold Indiana Factory Shops and Nebraska Crossing Factory Shops
(collectively, the "Prime Transferred Properties") to HGP for an aggregate
consideration of $26,015 resulting in a second quarter loss of $15,461.
Liquidity and Capital Resources
Sources and Uses of Cash
For the nine months ended September 30, 1998, net cash provided by operating
activities was $52,518, net cash used in investing activities was $122,846, and
net cash provided by financing activities was $77,713.
The primary uses of cash for investing activities during the nine months ended
September 30, 1998 included: (i) costs associated with the development and
construction of new factory outlet centers and expansions to existing factory
outlet centers aggregating 928,000 square feet of GLA which are expected to open
during 1998, (ii) costs associated with the completion of expansions to existing
factory outlet centers aggregating 224,000 square feet of GLA which opened
during 1997, (iii) costs for pre-development activities associated with future
developments, and (iv) and costs associated with the Company's merger with
Horizon. Such uses were partially offset by proceeds from the Company's sale of
the Prime Transferred Properties.
The primary source of cash from financing activities during the nine months
ended September 30, 1998 was proceeds from new borrowings of $421,970. Such
proceeds were partially offset by (i) principal repayments on notes payable of
$266,722, (ii) Preferred and Common Stock distributions of $60,143, (iii)
distributions to minority interests (including distributions to limited partners
of the Operating Partnership) of $14,145, and (iv) deferred financing costs of
$3,247.
Shelf Registration
On June 17, 1997, the Company filed a Form S-3 Registration Statement (the
"Shelf Registration") with the Securities and Exchange Commission to register
$300,000 of the Company's equity securities, including $66,122 of the Company's
equity securities that remained available under a previous Form S-3 Registration
Statement. As of September 30, 1998, the Company had $139,000 of availability
under the Shelf Registration. From time to time, the Company will consider
issuing additional securities under such Shelf Registration for the development
or acquisition of additional properties, the expansion and improvement of
existing properties, and for general corporate purposes.
Property Acquisitions
During 1998 and 1999, the Company will explore acquisitions of factory outlet
centers in the United States and Europe as well as consider possible strategic
acquisitions of other assets in the retail sector. The Company has evaluated and
is evaluating such opportunities and prospects and will continue to do so
throughout 1998 and 1999. The Company cannot predict if any transaction will be
consummated, nor the terms or form of consideration required.
<PAGE>
Business Combination
The Merger Transactions as set forth in the agreement and plan of merger (the
"Merger Agreement") between the Company and Horizon were consummated for an
aggregate consideration of approximately $1,083,100, including liabilities
assumed and related transaction costs.
Pursuant to the terms of the Merger Agreement, the Company acquired (i) all of
the outstanding shares of common stock of Horizon at an exchange ratio of 0.20
of a share of the Company's Series B Convertible Preferred Stock and 0.597 of a
share of the Company's Common Stock for each share of common stock of Horizon,
and (ii) all of the outstanding limited partnership units of Horizon/Glen Outlet
Centers Limited Partnership ("Horizon Partnership") at an exchange ratio of
0.9193 of a Common Unit of partnership interest in the Operating Partnership. A
total of 4,846,325 shares of Series B Convertible Preferred Stock and 14,466,329
shares of Common Stock were issued by the Company to the shareholders of Horizon
and 3,782,121 Common Units were issued by the Operating Partnership to the
limited partners of Horizon Partnership.
Immediately prior to the merger, Horizon Partnership contributed 13 of its 35
centers to Horizon Group Properties, L.P., of which HGP, a subsidiary of
Horizon, is the sole general partner. HGP was spun-off from the Company on June
15, 1998. The remaining 22 outlet centers of Horizon were integrated into the
Company's existing portfolio. On June 19, 1998, all of the common equity of HGP
was distributed to the convertible preferred and common shareholders and
unitholders of the Company and its Operating Partnership and the shareholders
and limited partners of Horizon and Horizon Partnership based on their ownership
in the Company immediately following consummation of the merger. One share of
common stock of HGP was distributed for every 20 shares of Common Stock and
Series C Convertible Preferred Stock of the Company and for every 20 Common
Units of the Operating Partnership. Additionally, approximately 1.196 shares of
the common stock of HGP were distributed for every 20 shares of Series B
Convertible Preferred Stock of the Company.
In connection with the Merger Transactions, the Company sold the Prime
Transferred Properties to HGP for an aggregate consideration of $26,015,
resulting in a loss of $15,461. Proceeds from the sale of the Prime Transferred
Properties were used to repay indebtedness associated with the Horizon
properties.
Concurrent with the closing of the merger, a special cash distribution was made
aggregating $21,871 consisting of $0.50 per share/unit to holders of Common
Stock, Series C Preferred Securities and Common Units and $0.60 per share to
holders of Series B Convertible Preferred Stock. Shareholders of Horizon and
limited partners of Horizon Partnership did not participate in these
distributions.
The merger has been accounted for using the purchase method of accounting and
the purchase price of $1,083,100 was allocated to the assets acquired and the
liabilities assumed based on estimates of their respective fair values. Certain
assumptions were made which management of the Company believes are reasonable.
The Company expects to finalize the purchase price allocation before the end of
1998. The final allocation is not expected to differ materially from the
allocation made at September 30, 1998.
The operating results of those properties acquired have been included in the
Company's consolidated results of operations commencing on the date of
acquisition. The operating results of the Prime Transferred Properties have been
included in the Company's consolidated results of operations through the date of
disposition.
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 the losses, if any, resulting from such matters, including the matter
described below, will not have a material adverse effect on the consolidated
financial statements of the Company.
<PAGE>
The Company is defendant in a lawsuit filed on July 27, 1998 in the U.S.
District Court for the Central District of California whereby the plaintiff
alleges that the Company and its related entities overcharged tenants for common
area maintenance expenditures. The outcome of, and the ultimate liability of the
Company, if any, from, this lawsuit cannot currently be predicted. Management
believes that the Company has acted properly and intends to defend this lawsuit
vigorously.
Debt Transactions
On September 25, 1998, the Company closed on an unsecured $40,000 revolving loan
(the "Revolving Loan") with a financial institution. The Revolving Loan (i)
bears interest equal to 30-day LIBOR plus 1.75%, (ii) requires monthly
interest-only payments, and (iii) matures on September 11, 2001. At September
30, 1998, the Revolving Loan had an outstanding principal balance of $28,300.
The Revolving Loan requires compliance with certain financial loan covenants
including those relating to the Company's (i) total outstanding variable
indebtedness, (ii) total outstanding indebtedness to market value, as defined,
(iii) consolidated net worth, as defined, and (iv) debt service coverage ratio.
On June 15, 1998, the Company closed on $292,000 of loan facilities with Nomura
Asset Capital Corporation. The transaction provided (i) a $180,000 nonrecourse
permanent loan (the "Permanent Loan") and (ii) a $112,000 full recourse bridge
loan of which $95,000 was funded (the "Bridge Loan"). The Permanent Loan is (i)
collateralized by first mortgages on four factory outlet centers, (ii) bears a
fixed rate of interest of 6.99%, (iii) requires monthly principal and interest
payments pursuant to an approximate 26-year amortization schedule, and (iv)
matures on June 15, 2008. The Bridge Loan is (i) collateralized by first
mortgages on six factory outlet centers, (ii) bears a variable rate of interest
equal to 30-day LIBOR plus 1.35%, (iii) requires monthly interest-only payments,
and (iv) matures on June 15, 2001.
As of November 11, 1998, the Company is a guarantor or otherwise obligated with
respect to $39,570 of the indebtedness of HGP and its affiliates, including
$10,000 of obligations under HGP's $108,205 three-year secured credit facility.
On April 1, 1998, Horizon consummated an agreement with Castle & Cooke
Properties, Inc. which released Horizon from its forward obligations under its
long-term lease of the Dole Cannery outlet center in Honolulu, Hawaii, in
connection with the formation of a joint venture with certain affiliates of
Castle & Cooke, Inc. ("Castle & Cooke") to operate such property. Under the
terms of the agreement, Castle & Cooke Properties, Inc., the landlord of the
project and an affiliate of Castle & Cooke, released Horizon from any continuing
obligations under the lease, which expires in 2045, in exchange for Horizon's
conveyance to the joint venture of its rights and obligations under such lease.
The agreement also provided that Horizon transfer to such joint venture
substantially all of Horizon's economic interest in its outlet center in Lake
Elsinore, California together with legal title to vacant property located
adjacent to the center. As of September 30, 1998, the Company holds a small
minority interest in the joint venture but has no obligation or commitment with
respect to the post-closing operations of the Dole Cannery project. However, the
Company is legally obligated for $30,864 of mortgage indebtedness outstanding at
September 30, 1998 which is secured by a first mortgage on the Lake Elsinore
outlet center. In addition, Castle & Cooke has provided the Company a guaranty,
without limitation, of the obligations relating to such mortgage
indebtedness.
<PAGE>
On March 18, 1998, the Company obtained from a financial institution a
commitment for a construction mortgage loan (the "Construction Mortgage Loan")
relating to Phase I of Prime Outlets at Hagerstown ("Hagerstown")in an amount
not to exceed $21,600 which was subsequently increased to $32,860 on October 2,
1998 as a result of obtaining a commitment for construction financing on Phase
II. The Construction Mortgage Loan (i) bears a variable interest rate at 30-day
LIBOR plus 1.50%, (ii) matures on June 1, 2004, and (iii) requires monthly
interest-only payments. The Construction Mortgage Loan is collateralized by a
first mortgage on Hagerstown. At September 30, 1998, $15,969 was outstanding on
the Construction Mortgage Loan.
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 928,000 square feet of GLA during 1998
including Prime Outlets at Lebanon which opened on April 17, 1998 and Prime
Outlets at Hagerstown which opened on August 7, 1998. Prime Outlets at Lebanon
is located in Lebanon, Tennessee, approximately 25 miles east of Nashville, and
contains 208,000 square feet of GLA. Prime Outlets at Lebanon was approximately
92% leased at September 30, 1998. Prime Outlets at Hagerstown is located in
Hagerstown, Maryland, west of Baltimore and northwest of Washington, D.C. Prime
Outlets at Hagerstown was approximately 96% leased at September 30, 1998. At
September 30, 1998, the remaining budgeted capital expenditures for 1998 planned
developments aggregated approximately $32,736, while anticipated capital
expenditures related to the completion of expansions of existing factory outlet
centers opened during 1997 (aggregating 224,000 square feet of GLA) approximated
$1,230.
Management believes that the Company has sufficient capital and capital
commitments to fund the remaining capital expenditures associated with its 1998
development activities. These funding requirements are expected to be met, in
large part, with the proceeds from various loan facilities.
The Company currently plans to open one new factory outlet center and several
expansions in 1999 that are expected to contain approximately 700,000 square
feet of GLA, in the aggregate, and have a total expected development cost of
approximately $95,000. The Company expects to fund the development cost of these
projects from (i) certain line of credit facilities, (ii) retained cash flow
from operations, (iii) construction loans, (iv) the potential sale of a joint
venture interest in certain factory outlet centers, and (v) the potential sale
of common or preferred equity in the public or private capital markets. As of
September 30, 1998, the Company had committed $13,757 with regard to the
construction of the new factory outlet center and expansions scheduled to open
in 1999. There can be no assurance that the Company will be successful in
obtaining the required amount of equity capital or debt financing for the 1999
planned openings or that the terms of such capital raising activities will be as
favorable as the Company has experienced in prior periods.
Debt Repayments and Preferred Stock Distributions and Dividends
The Company's aggregate indebtedness was $1,179,777 and $515,265 at September
30, 1998 and December 31, 1997, respectively. At September 30, 1998, such
indebtedness had a weighted average maturity of 6.0 years and bore interest at a
weighted average interest rate of 7.01% per annum. At September 30, 1998,
$588,457, or 49.9%, of such indebtedness bore interest at fixed rates and
$591,320, or 50.1%, of such indebtedness, including $28,250 of tax-exempt bonds,
bore interest at variable-rates. Of the variable rate indebtedness outstanding
at September 30, 1998, $353,803 converted to a fixed rate of 7.782% on November
11, 1998 for the remaining five-year term of such indebtedness.
At September 30, 1998, the Company held interest rate protection contracts on
all $28,250 of its floating rate tax-exempt indebtedness which expire in 1999
<PAGE>
and approximately $353,803 of other floating rate indebtedness which expired on
November 11, 1998 (or approximately 64.6% of its total floating rate
indebtedness). In addition, the Company held additional interest rate protection
contracts on $21,900 (expires in April 1999) of the $353,803 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 at September 30, 1998
(defined as total debt divided by the sum of: (a) the aggregate market value of
the outstanding shares of Common Stock, assuming the full exchange of Common
Units and Series C Preferred Securities into Common Stock; (b) the aggregate
market value of the outstanding shares of Series B Convertible Preferred Stock;
(c) the aggregate liquidation preference of the Series A Senior Cumulative
Preferred Stock ("Senior Preferred Stock") at $25.00 per share; and (d) the
total debt of the Company) was 60.7%.
The Company is obligated to repay $4,962 of mortgage indebtedness during the
remainder of 1998 and $77,498 in 1999. Annualized cumulative dividends on the
Company's Senior Preferred Stock, Series B Convertible Preferred Stock and
Series C Preferred Securities outstanding September 30, 1998 are $6,038,
$16,635, and $5,149, respectively. These dividends are payable quarterly, in
arrears.
The Company anticipates that cash flow from (i) certain line of credit
facilities, (ii) operations, (iii) new borrowings, (iv) refinancing of certain
existing debt, (v) the potential sale of a joint venture interest in certain
factory outlet centers, and (vi) the potential sale of common or preferred
equity in the public or private capital markets will be sufficient to satisfy
its debt service obligations, expected distribution and dividend requirements
and operating cash needs for the next year. There can be no assurance that the
Company will be successful in obtaining the required amount of funds for these
items or that the terms of capital raising activities, if any, will be as
favorable as the Company has experienced in prior periods.
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 September 30, 1998, the Company maintained interest rate
protection contracts to protect against significant increases in interest rates
on certain floating rate indebtedness (see "Debt Repayments and Preferred Stock
Distributions and 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.
Year 2000
Recognizing the need to ensure that the Company's operations will not be
adversely impacted by Year 2000 software failures, management has assessed the
potential impact of the Year 2000 on the processing of date-sensitive
information by the Company's computerized information systems. Based on this
assessment, management believes that the Company's primary computerized
information systems are Year 2000 compliant Recognizing the need to ensure that
the Company's operations will not be adversely impacted by Year 2000 software
failures, management has assessed the potential impact of the Year 2000 on the
processing of date-sensitive information by the Company's computerized
information systems. Based on this assessment, management believes that the
Company's primary computerized information systems are Year 2000 compliant.
Additionally, the Company is in the process of querying its significant vendors
and tenants about their Year 2000 compliance status. To date, the Company is not
aware of any vendors or tenants with a Year 2000 issue that would have a
material impact on the Company's results of operations, liquidity, or capital
resources. However, the Company has no means of ensuring that its vendors or
tenants will be Year 2000 ready. The inability of these vendors or tenants to
complete their Year 2000 resolution process in a timely fashion could materially
impact the Company. The effect of non-compliance by significant vendors and
tenants is not determinable. However, the Company will continue to monitor the
Year 2000 status of its significant vendors and tenants.
<PAGE>
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. In March
1995, the National Association of Real Estate Investment Trusts ("NAREIT")
established guidelines clarifying the definition of FFO. 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 liquidity of an
equity REIT because industry analysts have accepted it as a performance measure
of equity REITs. The Company's FFO is not comparable to FFO reported by other
REITs that do not define the term using the current NAREIT definition or that
interpret the current NAREIT definition differently than does the Company.
Therefore, 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. The
Company believes that in order to facilitate a clear understanding of its
operating results, FFO should be examined in conjunction with net income
determined in accordance with GAAP. FFO does not represent cash generated from
operating activities in accordance with GAAP and should not be considered as an
alternative to net income as an indication of the Company's performance or to
cash flows as a measure of liquidity or ability to make distributions.
TABLE 6 provides a reconciliation of income before allocation to minority
interests to FFO for the three and nine months ended September 30, 1998 and
1997. FFO increased $16,098, or 145.0%, to $27,202 for the three months ended
September 30, 1998 from $11,104 for the three months ended September 30, 1997.
FFO increased $27,968, or 87.6%, to $59,910 for the nine months ended September
30, 1998 from $31,942 for the nine months ended September 30, 1997. These
increases are primarily attributable to the Portfolio Expansion and the Horizon
Merger.
<TABLE>
TABLE 6 - Funds from Operations
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
--------------------------- --------------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before allocation to minority
interests $10,572 $ 4,091 $9,721 $11,167
FFO adjustments:
Loss on sale of real estate - - 15,461 -
Real estate depreciation and amortization 16,327 6,553 33,820 19,289
Unconsolidated joint venture adjustments 303 460 908 1,486
-------- -------- ------- -------
FFO before allocation to minority interests $27,202 $11,104 $59,910 $31,942
======== ======== ======= ========
====================================================================================================================================
</TABLE>
<PAGE>
PART II: OTHER INFORMATION
Item 1. 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 the losses, if any, resulting from such matters, including the matter
described below, will not have a material adverse effect on the consolidated
financial statements of the Company.
The Company is defendant in a lawsuit filed on July 27, 1998 in the U.S.
District Court for the Central District of California whereby the plaintiff
alleges that the Company and its related entities overcharged tenants for common
area maintenance expenditures. The outcome of, and the ultimate liability of the
Company, if any, from, this lawsuit cannot currently be predicted. Management
believes that the Company has acted properly and intends to defend this lawsuit
vigorously.
In the Company's previously filed Form 10-Q for the quarter ended March 31,
1998, it reported that on December 10, 1997 in the Circuit Court for Muskegon
County, Michigan (the "Court"), a shareholder of Horizon filed a purported class
action lawsuit against Horizon, the Company, and certain directors and former
directors of Horizon. The substantive allegations claim that Horizon's directors
breached their fiduciary duties to Horizon's shareholders in approving the
merger of Horizon and the Company and that the consideration to be paid to
Horizon's shareholders in connection with the merger was unfair and inadequate.
On September 8, 1998, a hearing was held before Judge James M. Graves of the
Court. At the hearing, the defendants, including the Company, continued to deny
any wrongdoing and liability. The Court approved the settlement set forth in the
Stipulation of Settlement (the "Stipulation") previously executed by the parties
to the lawsuit on July 21, 1998 and found that the settlement was, in all
respects, fair, reasonable, and adequate, and dismissed with prejudice the
litigation against the defendants. The settlement required that the Company pay
legal expenses of $325.
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:
Exhibit 12.1 - Ratio of Earnings to Fixed Charges
and Preferred Stock Distributions and Dividends
Exhibit 27.1 - Financial Data Schedule (EDGAR filing
only)
(b) Reports on Form 8-K:
On August 27, 1998, the Company filed a Current
Report on Form 8-K/A, dated June 15, 1998, reporting
(i)the merger and other transactions (collectively,
the "Transactions") as set forth in the agreement and
plan of merger between the Company and Horizon Group,
Inc. was consummated on June 15, 1998 and (ii) the
Company completed a $292.0 million debt financing
with Nomura Asset Capital Corporation in connection
with the Transactions. Unaudited pro forma
consolidated financial statements of the Company
and unaudited statements of revenue and certain
expenses of (i) the Prime Transferred Properties and
(ii) Horizon Group Properties, Inc. were included.
<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.
BY: PRIME RETAIL, INC.
Registrant
Date: November 12, 1998 /s/ Abraham Rosenthal
----------------- ------------------------
Abraham Rosenthal
Chief Executive Officer
Date: November 12, 1998 /s/ Robert P. Mulreaney
----------------- ------------------------
Robert P. Mulreaney
Executive Vice President,
Chief Financial Officer
and Treasurer
PRIME RETAIL, INC.
EXHIBIT 12.1: COMPUTATION OF RATIO OF EARNINGS
TO COMBINED FIXED CHARGES AND PREFERRED STOCK DISTRIBUTIONS AND DIVIDENDS
(Amounts in thousands, except for ratio information)
Nine Months Ended September 30
--------------------------------------------
1998 1997
------------ -----------
Income before minority interests $ 9,721 $ 11,167
Loss on sale of real estate 15,461 -
Interest incurred 42,984 30,155
Amortization of capitalized interest 341 235
Amortization of debt issuance costs 1,193 1,818
Amortization of interest rate protection
contracts 1,006 1,043
Less interest earned on interest rate
protection contracts (23) (86)
Less capitalized interest (4,511) (3,176)
------- ------
Earnings 66,172 41,156
------- ------
Interest incurred 42,984 30,155
Amortization of debt issuance costs 1,193 1,818
Amortization of interest rate protection
contracts 1,006 1,043
Preferred stock distributions 17,648 9,280
Combined Fixed Charges and ------- ------
Preferred Stock Distributions
and dividends 62,831 42,296
------- ------
Excess of Combined Fixed Charges
and Preferred Stock Distributions
and Dividends over Earnings $ (1,140)
==========
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Distributions and Dividends 1.05 x
==========
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 13,758
<SECURITIES> 0
<RECEIVABLES> 9,846
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 91,517
<PP&E> 1,861,604
<DEPRECIATION> 110,135
<TOTAL-ASSETS> 1,953,121
<CURRENT-LIABILITIES> 117,317
<BONDS> 1,179,777
0
137
<COMMON> 426
<OTHER-SE> 617,199
<TOTAL-LIABILITY-AND-EQUITY> 1,953,121
<SALES> 0
<TOTAL-REVENUES> 155,459
<CGS> 0
<TOTAL-COSTS> 130,277
<OTHER-EXPENSES> 3,997
<LOSS-PROVISION> 788
<INTEREST-EXPENSE> 39,399
<INCOME-PRETAX> 7,265
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,265
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,265
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
