================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 15, 1998
-----------------------------
Prime Retail, Inc.
(Exact name of registrant as specified in its charter)
Maryland 0-23616 52-1836258
- -------------------------------- ------------------- ---------------------
(State of other jurisdiction of (Commission File (IRS Employer
incorporation) Number) Identification No.)
100 East Pratt Street
Nineteenth Floor, Baltimore, Maryland 21202
- ---------------------------------------------------- ---------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (410) 234-0782
--------------
No Change
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
PRIME RETAIL, INC.
ITEM 7: Financial Statements and Exhibits
The following financial statements and unaudited pro forma financial
information are filed as part of this report:
A. Financial statements of the real estate acquired and disposed, prepared
pursuant to Rule 3.14 of Regulation S-X:
Financial Statements of Horizon Group, Inc. for the quarter ended March 31,
1998 are incorporated by reference to Horizon Group, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998.
Page
STATEMENT OF REVENUE AND CERTAIN EXPENSES OF THE
PRIME TRANSFERRED PROPERTIES
Statement of Revenue and Certain Expenses for the Three Months
Ended March 31, 1998 (Unaudited) .......................... 3
Notes to Statement of Revenue and Certain Expenses.............. 4
STATEMENT OF REVENUE AND CERTAIN EXPENSES OF HORIZON
GROUP PROPERTIES, INC.
Statement of Revenue and Certain Expenses for the Three Months
Ended March 31, 1998 (Unaudited)........................... 5
Notes to Statement of Revenue and Certain Expenses.............. 6
B. Unaudited pro forma financial information required pursuant to Article 11
of Regulation S-X (all capitalized terms used herein and not otherwise
defined shall have the meaning set forth in Sky Merger Corp.'s Registration
Statement on Form S-4 (File No. 333-51285)):
Page
NEW PRIME (Prime Retail, Inc.)
Pro Forma Post-Transactions (Unaudited)
Basis of Presentation to Pro Forma Consolidated Balance Sheet... 7
Pro Forma Consolidated Balance Sheet as of March 31, 1998....... 8
Notes to Pro Forma Consolidated Balance Sheet................... 9
Basis of Presentation to Pro Forma Consolidated Statement of
Operations for the three months ended March 31, 1998........... 15
Pro Forma Consolidated Statement of Operations for the three
months ended March 31, 1998.................................... 16
Notes to Pro Forma Consolidated Statement of Operations......... 17
HORIZON GROUP, INC.
Pro Forma Pre-Transactions (Unaudited)
Basis of Presentation to Pro Forma Consolidated Financial
Statements as of and for the three months ended March 31, 1998. 20
Pro Forma Consolidated Balance Sheet as of March 31, 1998....... 21
Notes to Pro Forma Consolidated Balance Sheet................... 22
Pro Forma Consolidated Statement of Operations for the three
months ended March 31, 1998.................................... 23
Notes to Pro Forma Consolidated Statement of Operations......... 24
<PAGE>
Prime Transferred Properties
Statement of Revenue and Certain Expenses
(Unaudited)
(in thousands)
Three Months Ended
March 31, 1998
------------------
Revenue
Base rents....................................... $1,030
Tenant reimbursements............................ 554
Interest and other............................... 352
--------
Total revenue.................................. 1,936
Expenses
Property operating............................... 414
Real estate taxes................................ 212
--------
Total expenses................................. 626
--------
Revenue in excess of certain expenses............... $1,310
========
See accompanying notes.
<PAGE>
Prime Transferred Properties
Notes to the Statement of Revenue and Certain Expenses
(Unaudited)
(in thousands, except for square foot information)
1. Business
The accompanying statement of revenue and certain expenses includes the
combined operations of the following factory outlet center properties (the
"Prime Transferred Properties") owned by Prime Retail, Inc.:
Property Name Location Square Footage
------------- -------- --------------
Nebraska Crossing Factory Stores... Gretna, Nebraska 192,000
Indiana Factory Shops.............. Daleville, Indiana 234,000
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying statement of revenue and certain expenses Securities and
Exchange was prepared for the purpose of complying with the rules and
regulations of the Commission. The statement is not representative of the actual
operations of the Prime Transferred Properties for the period presented nor
indicative of future operations as certain expenses, consisting of interest
expense and depreciation, have been excluded.
A summary of unaudited expenses are as follows:
Three Months Ended
March 31, 1998
------------------
Interest expense.................................... $467
Depreciation and amortization....................... 425
-----
Total unaudited expenses......................... $892
=====
Revenue Recognition
Rental revenue is recognized as income in the period earned.
Use of Estimates
The preparation of the statement of revenue and certain expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenue and
expenses during the reporting periods. Actual results may differ from those
estimates.
3. Rentals
The Prime Transferred Properties have entered into tenant leases with terms
from one to ten years. The leases provide for tenants to share in increases in
operating expenses and real estate taxes in excess of base amounts, as defined.
<PAGE>
Horizon Group Properties, Inc.
Statement of Revenue and Certain Expenses
(Unaudited)
(in thousands)
Three Months Ended
March 31, 1998
------------------
Revenue
Base rents....................................... $5,108
Percentage rents................................. 39
Tenant reimbursements............................ 1,534
Interest and other............................... 428
--------
Total revenue................................. 7,109
Expenses
Property operating............................... 1,383
Real estate taxes................................ 799
--------
Total expenses................................ 2,182
--------
Revenue in excess of certain expenses............... $4,927
========
See accompanying notes.
<PAGE>
Horizon Group Properties, Inc.
Notes to the Statement of Revenue and Certain Expenses
(Unaudited)
(in thousands)
1. Business
The accompanying statement of revenue and certain expenses includes the
combined operations of the 13 outlet centers that were spun-off to Horizon Group
Properties, Inc. ("HGP") as if HGP had been a separate entity for the period
presented.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying statement of revenue and certain expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission. The statement is not representative of the actual
operations of HGP for the period presented nor indicative of future operations
as certain expenses, consisting of interest expense, depreciation, general and
administrative, and certain other operating expenses have been excluded.
A summary of unaudited expenses are as follows:
Three Months Ended
March 31, 1998
------------------
Interest expense.................................... $3,186
Depreciation and amortization....................... 2,678
General and administrative.......................... 515
Other............................................... 308
--------
Total unaudited expenses......................... $6,687
========
Revenue Recognition
Rental revenue is recognized as income in the period earned.
Use of Estimates
The preparation of the statement of revenue and certain expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenue and
expenses during the reporting periods. Actual results may differ from those
estimates.
<PAGE>
NEW PRIME (Prime Retail, Inc.)
BASIS OF PRESENTATION TO UNAUDITED POST-TRANSACTIONS
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(UNAUDITED)
The accompanying Unaudited Post-Transactions Pro Forma Consolidated Balance
Sheet gives effect to the proposed Transactions as if the Transactions and
certain other transactions which occurred subsequent to March 31, 1998, had
occurred on March 31, 1998. The Unaudited Post-Transactions Pro Forma
Consolidated Balance Sheet gives effect to the Transactions under the purchase
method of accounting in accordance with Accounting Principles Board Opinion No.
16. In the opinion of management, all significant adjustments to reflect the
effects of the Transactions have been made.
The accompanying Unaudited Post-Transactions Pro Forma Consolidated Balance
Sheet is presented for comparative purposes only and is not necessarily
indicative of what the actual consolidated position of New Prime would have been
at March 31, 1998 if the Transactions had been completed as of that date, nor
does it purport to represent the future consolidated financial position of New
Prime. This Unaudited Post-Transactions Pro Forma Consolidated Balance Sheet
should be read in conjunction with, and is qualified in its entirety by, (a) the
historical financial statements and the notes thereto of Prime and Horizon
included in their respective Quarterly Reports on Form 10-Q for the three months
ended March 31, 1998; and (b) the Unaudited Pre-Transactions Pro Forma
Consolidated Balance Sheet as of March 31, 1998 of Horizon and notes thereto,
included elsewhere herein.
<PAGE>
<TABLE>
Pro Forma Consolidated Balance Sheet
New Prime (Prime Retail, Inc.)
As of March 31, 1998
(Unaudited)
(in thousands)
<CAPTION>
Transaction Adjustments
---------------------------------------------------------
Pre-Transactions Purchase of
Horizon Prime Transferred Finger Lakes Financings
Prime [A] Pro Forma [B] HGP [C] Properties [D] Center [E] and Other Pro Forma
--------- -------------- -------- ------------------ ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Investment in rental property, $ 841,471 $ 940,631 $ (211,131) $ (41,693) $ 48,301 $ 239,235 [F],[M] $ 1,776,249
net (40,565)[H]
Cash and cash equivalents 523 13,960 (3,901) 26,015 (5,162) 233,514 [O] 38,692
(6,810)[G]
(172,462)[I]
(21,870)[M]
(1,715)[J]
(23,400)[F],[O]
Restricted cash 27,936 760 6,810 [G] 35,506
Accounts receivable, net 9,329 6,857 (844) (299) 134 15,177
Deferred charges, net 13,670 17,807 (5,005) (689) 252 (12,802)[K] 14,948
1,715 [J]
Due from affiliates, net 413 9,791 (9,791) (44) 369
Investment in partnerships 3,921 1,636 (322) (1,314) 3,921
Assets held for sale 1,933 (1,933)
Other assets 4,054 7,881 (1,285) (4) 153 10,799
---------- ----------- --------- ----------- ------------- ---------- ---------
Total assets $ 901,317 $ 1,001,256 $ (234,212) $ (16,714) $ 42,364 $ 201,650 $ 1,895,661
========== =========== ========== ========= ======== ========= ==========
Liabilities and Shareholders'
Equity Mortgages and other
debt $ 525,774 $ 593,762 $ (146,851) $ 41,486 $(171,730)[I] $ 1,143,310
233,514 [O]
46,002 [L]
21,353 [F],[N]
Accrued interest 3,884 3,793 (654) $ (108) (732)[I] 6,183
Real estate taxes payable 5,996 5,372 (876) (960) 9,532
Construction costs payable 5,958 653 (321) 6,290
Accounts payable and other
liabilities 12,251 15,507 (4,070) (395) 878 24,171
Dividends and distributions
payable 14,942 6,802 21,744
---------- ------------- --------- ---------- ------------ ---------- ----------
Total liabilities 568,805 625,889 (152,772) (1,463) 42,364 128,407 1,211,230
Minority interests 9,710 57,899 56,023 [F],[P] 61,117
(57,899)[F],[Q]
(4,616)[M]
Commitment and contingencies [V]
Shareholders' equity [W]:
Series A preferred stock 23 23
Series B preferred stock 30 48 [F],[R] 78
Series C preferred stock 36 36
Common stock 273 241 145 [F],[S] 418
(241)[F],[T]
Additional paid-in capital 398,188 470,205 (470,205)[F],[T] 731,012
214,138 [F],[S]
118,686 [F],[R]
Predecessor owners' capital (81,440) 127,442 [F],[U]
(46,002)[L]
Distributions in excess of
net income (75,748) (152,978) (15,251) 193,543 [F],[T] (108,253)
(40,565)[H]
(17,254)[M]
---------- --------- --------- ------------- ------------ ---------- ----------
Total shareholders'
equity 322,802 317,468 (81,440) (15,251) 79,735 623,314
Total liabilities and ---------- --------- --------- ------------- ------------ ---------- ----------
shareholders' equity $ 901,317 $ 1,001,256 $ (234,212) $ (16,714) $ 42,364 $ 201,650 $ 1,895,661
========== =========== ========= ========= ======== ========== ===========
See accompanying Notes to Post-Transactions Pro Forma Consolidated Balance Sheet.
</TABLE>
<PAGE>
Notes to Post-Transactions Pro Forma Consolidated Balance Sheet
New Prime (Prime Retail, Inc.)
As of March 31, 1998
(Unaudited)
(in thousands except share and unit information)
[A] Represents Prime's historical balances at March 31, 1998.
[B] See Pre-Transactions Horizon Pro Forma Consolidated Balance Sheet as of
March 31, 1998 included elsewhere herein.
[C] Represents the historical cost of 13 factory outlet centers to be owned
and operated by HGP which were previously owned and operated by Horizon.
[D] Represents the historical cost of the Prime Transferred Properties in
connection with the sale of such properties to HGP for $26,015 upon
consummation of the Transactions as follows:
<TABLE>
<CAPTION>
Elimination of
Historical Cost Sales Proceeds Total
--------------- -------------- ---------
<S> <C> <C> <C>
Investment in rental property, net... $(41,693) $(41,693)
Cash and cash equivalents............ $26,015 26,015
Accounts receivable, net............. (299) (299)
Deferred charges, net................ (689) (689)
Due from affiliates, net............. (44) (44)
Other assets......................... (4) (4)
--------------- -------------- ---------
Total.............................. $(42,729) $26,015 $(16,714)
=============== ============== =========
Accrued interest..................... $ (108) $ (108)
Real estate taxes payable............ (960) (960)
Accounts payable and other
liabilities......................... (395) (395)
Predecessor owners' capital.......... (41,266) $(41,266)
Distributions in excess of net
income.............................. (15,251) (15,251)
--------------- -------------- ---------
Total liabilities and
shareholders' equity.............. $(42,729) $ 26,015 $(16,714)
=============== ============== =========
</TABLE>
New Prime recorded a loss of $15,461 in its Consolidated Statements of
Operations upon the effective date (June 15, 1998) of the Transactions.
However, the loss on the sale of the Prime Transferred Properties is not
reflected in the Post-Transactions Pro Forma Consolidated Statement of
Operations because it is nonrecurring.
[E] Represents the purchase of the remaining 50% interest of the Finger Lakes
Center for $46,648 from Horizon's joint venture partner upon consummation
of the Transactions on June 15, 1998. The purchase was financed though
the issuance of debt (see Note [O]) of which $41,486 is collateralized by
the Finger Lakes Center.
<PAGE>
Notes to Post-Transactions Pro Forma Consolidated Balance Sheet
New Prime (Prime Retail, Inc.)
As of March 31, 1998
(Unaudited)
(in thousands, except share and unit information)
[F] Represents adjustments to record the Transactions in accordance with the
purchase method of accounting, assuming a purchase price of $993,477,
based on the February 1, 1998 closing prices of $14.81 and $24.50 per
Prime Common Share and Prime Series B Preferred Share, respectively, as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Issuance of 14,466,329 New Prime Common Shares (i) ..................................... $214,283
Issuance of 3,782,121 Prime Partnership Common Units based on a 0.9193
exchange ratio for 4,114,132 Horizon Partnership Common Units......................... 56,023
Issuance of 4,846,325 New Prime Series B Preferred Shares (i)........................... 118,734
Assumption of Horizon's liabilities, net of liabilities to be distributed to HGP (ii)... 559,684
Adjustment to increase the assumed Horizon debt to its fair value....................... 21,353
Transactions costs (iii)................................................................ 23,400
-----------
Total purchase price................................................................. 993,477
Less historical basis of net assets acquired (iv):
Rental property, net................................................................. $(729,500)
Cash and cash equivalents............................................................ (10,059)
Restricted cash...................................................................... (760)
Accounts receivable, net............................................................. (6,013)
Investment in partnerships........................................................... (1,314)
Other assets......................................................................... (6,596)
------------
Subtotal........................................................................... ( 754,242)
------------
Step-up to record fair value of rental property......................................... $239,235
============
Components of the step-up adjustment include the following:
Issuance of 14,466,329 shares of New Prime Common Stock (see Note [S])................ $214,283
Elimination of HGP's Predecessor Owners' Capital (see Note [U])....................... 127,442
Issuance of 4,846,325 New Prime Series B Preferred Stock (see Note [R])............... 118,734
Issuance of 3,782,121 Prime Partnership Common Units (see Note [P])................... 56,023
Premium required to adjust assumed debt of Horizon to its estimated fair value
(see Note [N])...................................................................... 21,353
Transaction costs (see Note [O])...................................................... 23,400
Elimination of Horizon's deferred charges, net of the portion attributable to
HGP of $5,005 (see Note [K])........................................................ 12,802
Elimination of Horizon's Shareholders' Equity, net of the distribution of HGP's
net assets of $40,565 (see Note [T])................................................ (276,903)
Elimination of Horizon's Minority Interests (see Note [Q])............................ (57,899)
-----------
Total............................................................................... $239,235
===========
</TABLE>
Notes:
(i) Based on the exchange of 0.5970 of a New Prime Common Share and 0.20 of
a New Prime Series B Preferred Share for 24,231,706 Horizon Common
Shares.
(ii) Represents primarily long-term debt of $533,478 and other liabilities
and accrued expenses of $26,206.
<PAGE>
Notes to Post-Transactions Pro Forma Consolidated Balance Sheet
New Prime (Prime Retail, Inc.)
As of March 31, 1998
(Unaudited)
(in thousands, except share and unit information)
(iii) The following summarizes the estimated fees and other expenses related
to the Transactions:
Employee termination costs.............................. $ 6,444
Advisory fees........................................... 9,074
Legal and accounting fees............................... 6,633
Printing, filing and other costs........................ 1,249
---------
Total................................................ $23,400
=========
(iv) Represents the Pre-Transactions Horizon Pro Forma balances less HGP's
historical balances per the New Prime's Pro Forma Consolidated Balance
Sheet included herein:
Pre-Transactions
Horizon
Pro Forma Less HGP Total
---------------- ------------- ---------
Rental property, net....... $940,631 $(211,131) $729,500
Cash and cash equivalents.. 13,960 (3,901) 10,059
Restricted cash............ 760 760
Accounts receivable, net... 6,857 (844) 6,013
Due from affiliates, net... 9,791 (9,791) -
Investment in partnerships. 1,636 (322) 1,314
Assets held for sale....... 1,933 (1,933) -
Other assets............... 7,881 (1,285) 6,596
---------------- ------------- ---------
Total.................... $983,449 $(229,207) $754,242
================ ============= =========
[G] Represents loan escrows associated with mortgage loan commitments
discussed in Note [O].
<PAGE>
Notes to Post-Transactions Pro Forma Consolidated Balance Sheet
New Prime (Prime Retail, Inc.)
As of March 31, 1998
(Unaudited)
(in thousands, except share and unit information)
[H] Represents the distribution of net assets to HGP calculated as follows:
Estimated fair value of HGP's assets................... $151,974
Total liabilities of HGP............................... 111,409
---------
Purchase price allocated to HGP (see Note (i) below). $ 40,565
=========
The estimated fair value of HGP's operating properties was based upon a
direct capitalization of each property's estimated net operating income.
Property capitalization rates were based upon various factors including
property location, historical operating performance, occupancy rates and
industry information relating to sales of factory outlet centers.
Note:
(i) Reflects the difference between HGP's net assets on a historical cost
and fair value basis as follows:
Historical basis of HGP net assets......................... $81,440
Adjustment of HGP's net assets to its fair value........... (40,875)
-------
Estimated fair value of HGP's net assets.............. $40,565
=======
[I] Represents the payment of certain mortgage debt and related accrued
interest funded from a portion of the proceeds from the mortgage loan
commitments discussed in Note [O].
[J] Represents financing costs associated with the closing of the mortgage
loan commitments discussed in Note [O].
[K] Elimination of Horizon's deferred charges in connection with the
Transactions, net of the portion attributable to HGP of $5,005.
[L] To eliminate the debt allocated to HGP in its historical financial
statements based upon the proportionate use of debt methodology.
[M] Represents the Prime Cash Distribution which was funded from a portion of
the proceeds from the mortgage loan commitments discussed in Note [O].
[N] Premium required to adjust historical debt of Horizon to its estimated
fair value based on an effective interest rate of 6.99%. The effective
interest rate represents the prevailing rate charged by lenders for first
mortgages on similar property with similar loan terms.
[O] On June 15, 1998, 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 (the "Bridge Loan") of which $95,000
was funded. The Permanent Loan is (i) collateralized by first mortgages
on four factory outlet centers, (ii) bears a fixed rate of interest of
6.99%, (iii) requires monthly principal and interest payments pursuant to
an approximate 26-year amortization schedule, and (iv) matures on June
15, 2008. The Bridge Loan is (i) collateralized by first mortgages on
six factory outlet centers, (ii) bears a variable rate of interest
equal to 30-day LIBOR plus 1.35%, (iii) requires monthly interest-only
payments, and (iv) matures on June 15, 2001.
<PAGE>
Notes to Post-Transactions Pro Forma Consolidated Balance Sheet
New Prime (Prime Retail, Inc.)
As of March 31, 1998
(Unaudited)
(in thousands, except share and unit information)
The proceeds of $275,000 from these facilities were used as follows:
Purchase of Finger Lakes Center (see Note [E])............ $ 46,648
Payment of Prime Cash Distribution (see Note [M])......... 21,870
Repayment of certain mortgage debt and related
accrued interest (see Note [I]).......................... 172,462
Financing costs (see Note [J])............................ 1,715
Loan escrows (see Note [G])............................... 6,810
Transaction costs (see Note [F]).......................... 23,400
Cash retained for general corporate expenditures.......... 2,095
-----------
Total................................................... $275,000
===========
[P] Reflects the issuance of 3,782,121 Prime Partnership Common Units based
on the February 1, 1998 closing price of $14.81 per Prime Common Share as
follows (see Note [F]):
Prime Partnership Common Units issued (in thousands)...... 3,782
Multiply by market price.................................. $ 14.81
--------
Total................................................... $56,023
========
[Q] Elimination of Horizon's historical Minority Interests.
[R] Reflects the issuance of 4,846,325 New Prime Series B Preferred Shares as
follows (see Note [F]):
Par value of 4,846,325 shares of New Prime Series B
Preferred Stock at $0.01 par value....................... $ 48
Additional paid-in capital based on the February 1, 1998
closing price of $24.50 per Prime Series B Preferred
Share.................................................... 118,686
--------
Total................................................. $118,734
========
[S] Reflects the issuance of 14,466,329 shares of New Prime Common Stock as
follows (see Note [F]):
Par value of 14,466,329 shares of New Prime Common
Stock at $0.01 par value................................. $ 145
Additional paid-in capital based on the February 1, 1998
closing price of $14.81 per Prime Common Share........... 214,138
---------
Total.................................................. $214,283
=========
[T] Reflects the elimination of Horizon's Shareholders' Equity, net of the
distribution of HGP's net assets, as follows:
Common stock............................................. $ 241
Additional paid-in capital............................... 470,205
Distributions in excess of net income, net of distribution
of HGP's net assets of $40,565.......................... (193,543)
-------
Total................................................ $276,903
========
[U] Reflects the elimination of HGP's Predecessor Owners' Capital, including
the debt allocated to HGP of $46,002 (see Note [L]).
<PAGE>
Notes to Post-Transactions Pro Forma Consolidated Balance Sheet
New Prime (Prime Retail, Inc.)
As of March 31, 1998
(Unaudited)
(in thousands, except share and unit information)
[V] Following the spin-off of HGP, New Prime became a guarantor or otherwise
obligated with respect to approximately $41,857 of HGP's indebtedness,
including $12,200 of obligations under HGP's $108,205 three-year secured
credit facility with Nomura Asset Capital Corporation. New Prime and HGP
are continuing to seek the consent of certain parties to the assumption
by HGP or its affiliates of $13,864 of indebtedness in connection with
the spin-off.
[W] The number of shares authorized, issued and outstanding, including Prime
Partnership Common Units, on a historical and pro forma basis is as
follows:
<TABLE>
<CAPTION>
Historical
--------------------------------------------------------
Shares Shares/Units Shares/Units
Authorized Issued Outstanding
---------- ------ -----------
<S> <C> <C> <C>
Preferred Shares............... 24,315,000
==========
Prime Series A Preferred Shares... 2,300,000 2,300,000
Prime Series B Preferred Shares... 2,981,800 2,981,800
Prime Series C Preferred Shares... 3,636,363 3,636,363
--------- ---------
Total......................... 8,918,163 8,918,163
========= =========
Prime Common Shares............. 75,000,000 27,294,951 27,294,951
========== ========== ==========
Prime Partnership Common Units.. 8,505,472 8,505,472
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
--------------------------------------------------------
Shares Shares/Units Shares/Units
Authorized Issued Outstanding
---------- ------ -----------
<S> <C> <C> <C>
Preferred Shares............... 24,315,000
==========
New Prime Series A Preferred Shares.. 2,300,000 2,300,000
New Prime Series B Preferred Shares.. 7,828,125 7,828,125
New Prime Series C Preferred Shares.. 3,636,363 3,636,363
--------- ---------
Total............................ 13,764,488 13,764,488
========== ==========
New Prime Common Shares............... 150,000,000 41,762,280 41,762,280
=========== ========== ==========
Prime Partnership Common Units........ 12,287,593 12,287,593
========== ==========
</TABLE>
<PAGE>
NEW PRIME (PRIME RETAIL, INC.)
BASIS OF PRESENTATION TO UNAUDITED POST-TRANSACTIONS
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
The accompanying Unaudited Post-Transactions Pro Forma Consolidated
Statement of Operations for the three months ended March 31, 1998 gives effect
to the Transactions and certain other transactions which occurred subsequent to
March 31, 1998, as if they had occurred January 1, 1998. The Unaudited
Post-Transactions Pro Forma Consolidated Statement of Operations gives effect to
the Transactions under the purchase method of accounting in accordance with
Accounting principles Board Opinion No. 16 with the consolidated entity (a)
qualifying as a REIT; (b) distributing at least 95% of its taxable income; and
(c) therefore, incurring no federal income tax liability for the three months
ended March 31, 1998. In the opinion of management, all significant adjustments
to reflect the effects of the Transactions have been made.
The accompanying Unaudited Post-Transactions Pro Forma Consolidated
Statement of Operations is presented for comparative purposes only and is not
necessarily indicative of what the actual consolidated results of Prime and
Horizon would have been for the three months ended March 31, 1998 if the
Transactions had been completed on January 1, 1998, nor does it purport to
represent the future consolidated results of operations of Prime and Horizon.
This Unaudited Post-Transactions Pro Forma Consolidated Statement of Operations
should be read in conjunction with, and is qualified in its entirety by, (a) the
historical financial statements and the notes thereto of Prime and Horizon
included in their respective Reports on Form 10-Q for the three months ended
March 31, 1998; and (b) the Unaudited Pre-Transactions Pro Forma Consolidated
Statement of Operations for the three months ended March 31, 1998 of Horizon and
notes thereto, included elsewhere herein.
<PAGE>
<TABLE>
Post-Transactions Pro Forma Consolidated Statement of Operations
New Prime (Prime Retail, Inc.)
For the Three Months Ended March 31, 1998
(Unaudited)
(in thousands, except per share information)
<CAPTION>
Transactions Adjustments
-------------------------------------------------------------
Pre-Transactions Prime Purchase of
Horizon Transferred Finger Lakes Financings New Prime
Prime [A] Pro Forma [B] HGP [C] Properties [D] Center [E] and Other Pro Forma
---------- -------------- ------- -------------- ------------- -------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Base rents $ 23,083 $ 26,396 $(5,108) $ (1,030) $ 1,451 $ 44,792
Percentage rents 865 1,140 (39) 20 1,986
Tenant reimbursements 10,743 7,203 (1,534) (554) 359 16,217
Interest and other 2,817 2,189 (428) (352) 58 4,284
-------- -------- ------- -------- ------- --------
Total revenues 37,508 36,928 (7,109) (1,936) 1,888 67,279
Expenses
Property operating 8,353 4,894 (1,383) (414) 303 11,753
Real estate taxes 2,856 3,231 (799) (212) 99 5,175
Depreciation and
amortization 7,823 9,883 (2,678) (425) 288 $ 102 [F] 14,993
General and
administrative [G] 1,692 2,640 (515) 85 3,902
Interest 8,374 13,566 (3,186) 735 (787) [H] 18,702
Other charges 959 1,470 (308) 1 2,122
-------- -------- ------- -------- ------- ----- --------
Total expenses 30,057 35,684 (8,869) (1,051) 1,511 (685) 56,647
-------- -------- ------- -------- ------- ----- --------
Income (loss) before
minority interests 7,451 1,244 1,760 (885) 377 685 10,632
Income (loss) allocated
to minority interests 5,461 (149) (4,094) [I] 1,218
------ ------- ------- --- ----- ----- --------
Income (loss) from
continuing operations 1,990 1,393 1,760 (885) 377 4,779 9,414
Income allocated to
preferred shareholders 4,166 2,575 [J] 6,741
------ ------- ------ --- ----- ----- --------
Net income (loss)
applicable to common
shares $ (2,176) $ 1,393 $ 1,760 $ (885) $ 377 $ 2,204 $ 2,673
======== ======= ======= ====== ====== ======= ========
Earnings (loss) per
common share:
Basic $ (0.08) $ 0.06 $ 0.06
======= ====== ========
Diluted $ (0.08) $ 0.05 $ 0.06
======= ====== ========
Weighted average common
shares outstanding:
Basic 27,295 24,130 (9,664) [K] 41,761
====== ====== ====== =======
Diluted 27,295 28,294 (13,623) [K] 41,966
====== ====== ====== =======
See accompanying Notes to Post-Transactions Pro Forma Consolidated Statement of Operations.
</TABLE>
<PAGE>
Notes to Post-Transactions Pro Forma Consolidated Statement of Operations
New Prime (Prime Retail, Inc.)
For the Three Months Ended March 31, 1998
(Unaudited)
(in thousands)
[A] Represents Prime historical operations for the three months ended March
31, 1998.
[B] See Pre-Transactions Horizon Pro Forma Consolidated Statement of
Operations for the three months ended March 31, 1998 included elsewhere
herein.
[C] To eliminate HGP's historical operations for the three months ended
March 31, 1998.
[D] To eliminate the historical operations of the Prime Transferred
Properties for the three months ended March 31, 1998. Interest expense on
the Prime Transferred Properties has not been eliminated since the debt
historically encumbering these assets was not transferred to HGP. In
accordance with the collateral substitution provisions of the underlying
debt agreement, Prime collateralized such indebtedness with an
unencumbered asset.
In connection with the closing of the Transactions, Prime sold the Prime
Transferred Properties to HGP for an aggregate consideration of $26,015
resulting in a loss of $15,461 to New Prime. New Prime recorded this loss
in its Consolidated Statements of Operations upon the effective date
(June 15, 1998) of the Transactions. However, the loss on the sale of the
Prime Transferred Properties is not reflected in the Post-Transactions
Pro Forma Consolidated Statement of Operations because it is
nonrecurring.
[E] To reflect the acquisition of Horizon's joint venture partner's 50%
partnership interest in the Finger Lakes Center for $46,648. The pro
forma adjustments reflect the (i) historical depreciation expense and
depreciation expense on the step-up adjustment allocated to rental
property and (ii) interest expense on debt issued to finance the
acquisition.
A step-up adjustment to rental property results from recording the
purchase of the 50% partnership interest in the Finger Lakes Center at
its contract price less the joint venture partner's capital balance. The
step-up adjustment was allocated 10.0% to land and 90.0% to depreciable
assets. The depreciation expense on the step-up adjustment is computed
using the straight-line method over an estimated useful life of 40 years.
The effect of a 1/8% variance in the interest rate on the debt
associated with such transaction would be approximately $13.
[F] Increase reflects the depreciation on the pro forma adjustments allocated
to depreciable rental property.
The pro forma adjustments to rental property result from recording the
Horizon real estate at its net purchase price. The pro forma adjustments
were allocated 10.0% to land and 90.0% to depreciable assets. The
depreciation expense on the pro forma adjustments is computed using the
straight-line method over an estimated useful life of 40 years.
[G] Management has forecasted on an annual basis approximately $3,950 of
certain general and administrative expenses which are anticipated to be
eliminated or reduced as a result of the Transactions. The general and
administrative cost savings have not been included in the
Post-Transactions Pro Forma Consolidated Statement of Operations. There
can be no assurance that New Prime will be successful in realizing such
anticipated cost savings. The components of the anticipated annual cost
savings are as follows:
<PAGE>
Notes to Post-Transactions Pro Forma Consolidated Statement of Operations
New Prime (Prime Retail, Inc.)
For the Three Months Ended March 31, 1998
(Unaudited)
(in thousands)
Salaries and related benefits..................... $2,350 (i)
Public company expenses........................... 750 (ii)
Travel and entertainment expense.................. 700 (iii)
Occupancy and other............................... 150
------
$3,950
======
Notes:
(i) Reduction is primarily attributable to the expected annual cost savings
associated with net reduction in the number of full-time Horizon
employees being retained by New Prime.
(ii) The following summarizes the components of such annual reduction:
Professional fees, primarily accounting fees... $500
D&O insurance.................................. 200
Other.......................................... 50
------
$750
======
(iii) The following summarizes the components of such annual reduction:
Travel, lodging, meals and entertainment....... $400
Conventions and meetings....................... 200
Operating lease expense........................ 100
------
$700
======
[H] Decrease reflects the following:
Amortization of premium required to record Horizon's
debt, net of HGP, at its estimated
fair value (i).................................. $(989)
Elimination of Horizon's historical amortization of
deferred financing costs, net of HGP............. (456)
Interest savings resulting from repayment of certain
mortgage debt........................................ (471)
Interest expense on mortgage loan facilities closed
in connection with the consummation of
the Transactions..................................... 1,129
------
$(787)
======
The effect of a 1/8% variance in the interest rate on the debt associated
with these Transactions would be approximately $73.
Note:
(i) The premium is being amortized over the remaining terms of the
underlying debt instruments in accordance with the effective interest
method. The underlying debt instruments have a weighted average
remaining term of approximately 6.4 years as of March 31, 1998.
[I] Increase reflects the issuance of additional Prime Partnership Common Units
in connection with the consummation of the Transactions. The pro forma
allocation to minority interests is based upon the percentage to be owned
by the holders of the Prime Partnership Common Units.
[J] Increase reflects additional income allocated to New Prime Series B
Preferred Shares issued in connection with the consummation of the
Transactions at the beginning of the period presented.
<PAGE>
Notes to Post-Transactions Pro Forma
Consolidated Statement of
Operations (continued) New Prime
(Prime Retail, Inc.)
For the Three Months Ended March 31, 1998
(Unaudited)
(in thousands)
[K] Decrease reflects the following:
Basic Diluted
----- -------
Elimination of Horizon's historical
weighted average common shares
outstanding........................ (24,130) (28,294)
Issuance of Prime Common Shares in
connections with consummation
of the Transactions................. 14,466 (14,671)
------ --------
(9,664) (13,623)
======= =======
<PAGE>
HORIZON GROUP, INC.
BASIS OF PRESENTATION OF
PRE-TRANSACTIONS PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
The accompanying Unaudited Pre-Transactions Pro Forma Consolidated Balance Sheet
as of March 31, 1998 reflects the consummation of the C&C Contribution
Agreement, which occurred subsequent to March 31, 1998, as if it had occurred on
March 31, 1998.
The accompanying Unaudited Pre-Transactions Pro Forma Consolidated
Statement of Operations for the three months ended March 31, 1998 reflects the
consummation of the C&C Contribution Agreement which occurred subsequent to
March 31, 1998, as if it had occurred on January 1, 1998.
The accompanying Unaudited Pre-Transactions Pro Forma Consolidated
Financial Statements are presented for comparative purposes only and do not
purport to be indicative of the results which would have been obtained had the
transaction described above been completed on the dates indicated or which may
be obtained in the future. The Unaudited Pro Forma Consolidated Financial
Statements should be read in conjunction with the Notes to the Pre-Transactions
Consolidated Financial Statements.
<PAGE>
<TABLE>
Pre-Transactions Pro Forma Consolidated Balance Sheet
Horizon Group, Inc.
As of March 31, 1998
(Unaudited)
(in thousands)
<CAPTION>
Pre-Transactions
C&C Contribution Horizon
Horizon [A] Agreement [B] Pro Forma
---------------- ----------------------- ---------------------
<S> <C> <C> <C>
Assets
Investment in rental property, net $ 1,004,513 $ (63,882) $ 940,631
Cash and cash equivalents 13,960 13,960
Restricted cash 760 760
Accounts receivable, net 7,102 (245) 6,857
Deferred charges, net 18,250 (443) 17,807
Due from affiliates, net 9,791 9,791
Investment in partnerships 1,636 1,636
Assets held for sale 1,933 1,933
Other assets 7,899 (18) 7,881
---------------- --------------------- -------------------
Total assets $ 1,065,844 $ (64,588) $ 1,001,256
================ ===================== ===================
Liabilities and Shareholders' Equity
Mortgages and other debt $ 624,708 $ (30,946) $ 593,762
Accrued interest 3,793 3,793
Real estate taxes payable 5,372 5,372
Construction costs payable 653 653
Accounts payable and other liabilities 22,230 (6,723) 15,507
Dividends and distributions payable 6,802 6,802
---------------- -------------------- -------------------
Total liabilities 663,558 (37,669) 625,889
Minority interests 57,899 57,899
Shareholders' equity:
Common stock 241 241
Additional paid-in capital 470,205 470,205
Distributions in excess of net income (126,059) (26,919) (152,978)
---------------- -------------------- -------------------
Total shareholders' equity 344,387 (26,919) 317,468
---------------- --------------------- -------------------
Total liabilities and
shareholders' equity $ 1,065,844 $ (64,588) $ 1,001,256
================ ===================== ===================
See Notes to Pre-Transactions Pro Forma Consolidated Balance Sheet.
</TABLE>
<PAGE>
Notes to Pre-Transactions Pro Forma Consolidated Balance Sheet
Horizon Group, Inc.
As of March 31, 1998
(Unaudited)
(in thousands)
[A] Certain reclassifications have been made to Horizon's historical balance
sheet to conform to Prime's balance sheet presentation.
[B] To reflect the contribution of the Lake Elsinore Center and the
contribution of the Dole Cannery Center and release of Horizon's long-term
ground lease obligations pursuant to the C&C Contribution Agreement. In
connection with the consummation of the C&C Contribution Agreement on April
1, 1998, Horizon incurred a loss of $26,919 which represented the net
assets of such centers.
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
all forward 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. Horizon holds a small
minority interest in the joint venture but has no obligation or commitment
with respect to the post-closing operations of the Dole Cannery project.
However, Horizon is legally obligated for the mortgage indebtedness
outstanding which is secured by a first mortgage on the Lake Elsinore
outlet center. In addition, Castle & Cooke has provided Horizon a guaranty,
without limitation, of the obligations under the mortgage note.
<PAGE>
<TABLE>
Pre-Transactions Pro Forma Consolidated Statement of Operations
Horizon Group, Inc.
For the Three Months Ended March 31, 1998
(Unaudited)
(in thousands, except per share information)
<CAPTION>
C&C Contribution Agreement
---------------------------------------- Pre-Transactions
Dole Cannery Lake Elsinore Horizon
Horizon [A] Center [B] Center [C] Pro Forma
------------------ ------------------ ------------------- -------------------
<S> <C> <C> <C> <C>
Revenues
Base rents $ 27,940 $ (117) $ (1,427) $ 26,396
Percentage rents 1,154 (14) 1,140
Tenant reimbursements 7,785 (73) (509) 7,203
Interest and other 2,211 (18) (4) 2,189
------------------ ------------------ ------------------- -------------------
Total revenues 39,090 (208) (1,954) 36,928
Expenses
Property operating 5,700 (434) (372) 4,894
Real estate taxes 3,509 (69) (209) 3,231
Depreciation and amortization 10,376 (493) 9,883
General and administrative 2,640 2,640
Interest 13,566 13,566
Other charges 3,566 (2,096) 1,470
------------------ ------------------ ------------------- -------------------
Total expenses 39,357 (2,599) (1,074) 35,684
------------------ ------------------ ------------------- -------------------
Income (loss) before minority interests (267) 2,391 (880) 1,244
Income (loss) allocated to minority interests (149) (149)
------------------ ------------------ ------------------- -------------------
ncome (loss) from continuing operations $ (118) $ 2,391 $ (880) $ 1,393
================== ================== =================== ===================
Earnings per common share:
Basic $ - $ 0.06
================== ===================
Diluted $ - $ 0.05
================== ===================
Weighted average common shares outstanding:
Basic 24,130 24,130
================== ===================
Diluted 28,294 28,294
================== ===================
See accompanying Notes to Pre-Transactions Pro Forma Consolidated Statement of Operations.
</TABLE>
<PAGE>
Notes to Pre-Transactions Pro Forma Consolidated Statement of Operations
Horizon Group, Inc.
As of March 31, 1998
(Unaudited)
(in thousands)
[A] Certain reclassifications have been made to Horizon's historical statement
of operations to conform to the presentation of Prime's statement of
operations.
[B] To eliminate the operations of the Dole Cannery Center resulting from (i)
Horizon's contribution of such center and (ii) the release of Horizon from
its long-term ground lease of such center, pursuant to the C&C Contribution
Agreement which was consummated on April 1, 1998.
[C] To reflect the contribution of the Lake Elsinore Center, pursuant to the
terms of the C&C Contribution Agreement, which was consummated on April 1,
1998, including the elimination of the operations of the center.
<PAGE>
PRIME RETAIL, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRIME RETAIL, INC.
(Registrant)
Dated: August 27, 1998
---------------
By: /s/ Robert P. Mulreaney
-----------------------
Name: Robert P. Mulreaney
Title: Executive Vice President,
Chief Financial Officer and
Treasurer
