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 March 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, for the Transition Period From to .
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Commission file number 0-23616
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PRIME RETAIL, INC.
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(Exact name of registrant as specified in its charter)
Maryland 52-1836258
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 East Pratt Street
Nineteenth Floor
Baltimore, Maryland 21202
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(Address of principal executive offices) (Zip Code)
(410) 234-0782
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address, or former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
As of May 11, 1998, the issuer had outstanding 27,294,951 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 March 31, 1998 and
December 31,1997 1
Consolidated Statements of Operations for the three months
ended March 31, 1998 and 1997 2
Consolidated Statements of Cash Flows for the three
months ended March 31, 1998 and 1997 3
Notes to the Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits or Reports on Form 8-K 19
Signatures 20
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
<TABLE>
Prime Retail, Inc.
Consolidated Balance Sheets
(in thousands, except share information)
<CAPTION>
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March 31, 1998 December 31, 1997
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<S> <C> <C>
Assets
Investment in rental property:
Land $ 66,277 $ 66,277
Buildings and improvements 781,583 779,191
Property under development 76,403 53,139
Furniture and equipment 6,666 6,175
------------- -------------
930,929 904,782
Accumulated depreciation (89,458) (82,033)
------------- -------------
841,471 822,749
Cash and cash equivalents 523 6,373
Restricted cash 27,936 41,736
Accounts receivable, net 9,329 9,745
Deferred charges, net 13,670 16,206
Due from affiliates,net 413 1,052
Investment in partnerships 3,921 3,278
Other assets 4,054 3,044
------------- -------------
Total assets $ 901,317 $ 904,183
============= =============
Liabilities and Shareholders' Equity
Bonds payable $ 32,900 $ 32,900
Notes payable 492,874 482,365
Accrued interest payable 3,884 3,767
Real estate taxes payable 5,996 4,639
Construction costs payable 5,958 5,849
Accrued dividends and distributions payable 14,942 -
Accounts payable and other liabilities 12,251 20,210
------------- -------------
Total liabilities 568,805 549,730
Minority interests 9,710 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 $74,545)
2,981,800 shares issued and outstanding 30 30
Series C Cumulative Participating Convertible Redeemable
Preferred Stock, $.01 par value (liquidation preference of
$50,000), 3,636,363 shares issued and outstanding 36 36
Shares of common stock, 75,000,000 shares authorized:
Common stock, $0.01 par value, 27,294,951
shares issued and outstanding, 273 273
Additional paid-in capital 398,188 398,188
Distributions in excess of net income (75,748) (54,022)
------------- -------------
Total shareholders' equity 322,802 344,528
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Total liabilities and shareholders' equity $ 901,317 $ 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>
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Three months ended March 31, 1998 1997
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<S> <C> <C>
Revenues
Base rents $ 23,083 $ 18,066
Percentage rents 865 669
Tenant reimbursements 10,743 8,949
Interest and other 2,817 2,478
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Total revenues 37,508 30,162
Expenses
Property operating 8,353 6,633
Real estate taxes 2,856 2,390
Depreciation and amortization 7,823 6,328
Corporate general and administrative 1,692 1,350
Interest 8,374 9,169
Other charges 959 799
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Total expenses 30,057 26,669
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Income before minority interests 7,451 3,493
Income allocated to minority interests 5,461 2,591
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Net income 1,990 902
Income allocated to preferred shareholders 4,166 3,093
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Net loss applicable to common shares $ (2,176) $ (2,191)
============= =============
Net loss per common share - basic and diluted $ (0.08) $ (0.15)
============= =============
Weighted average common shares outstanding 27,295 14,344
============= =============
Distributions declared per common share $ 0.295 $ 0.295
============= =============
===================================================================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Prime Retail, Inc.
Consolidated Statements of Cash Flows
(in thousands)
<CAPTION>
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Three months ended March 31, 1998 1997
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<S> <C> <C>
Operating Activities
Net income $ 1,990 $ 902
Adjustments to reconcile net income to
net cash provided by operating activities:
Income allocated to minority interests 5,461 2,591
Depreciation 7,511 5,914
Amortization of deferred financing costs and
interest rate protection contracts 509 944
Amortization of leasing commissions 312 414
Provision for uncollectible accounts receivable 306 253
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 110 (1,200)
Decrease in due from affiliates, net 639 163
(Increase) decrease in other assets 13,425 (1,713)
Increase in accrued interest 117 61
Decrease in accounts payable and other liabilities (4,802) (1,373)
------------- -------------
Net cash provided by operating activities 25,578 6,956
Investing Activities
Purchase of buildings and improvements (4,247) (4,782)
Increase in property under development (23,155) (5,107)
Acquisition of outlet centers - (37,658)
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Cash used in investing activities (27,402) (47,547)
Financing Activities
Net proceeds from issuance of common and preferred stock - 31,930
Proceeds from notes payable 32,611 58,215
Principal repayments on notes payable (22,102) (23,329)
Deferred financing fees (85) (522)
Distributions and dividends paid (11,498) (6,954)
Distributions to minority interests (2,952) (2,591)
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Net cash provided by (used in) financing activities (4,026) 56,749
------------- -------------
Increase (decrease) in cash and cash equivalents (5,850) 16,158
Cash and cash equivalents at beginning of period 6,373 3,924
------------- -------------
Cash and cash equivalents at end of period $ 523 $ 20,082
============= =============
===================================================================================================================================
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'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 -- Minority Interests
Cash distributions and losses allocated to the common unitholders reduced the
common unitholders' minority interests balance to zero during 1996. Accordingly,
cash distributions in excess of income allocated to the common unitholders'
minority interests of $4,342 and $2,335 during the three months ended March 31,
1998 and 1997, respectively, were allocated to common shareholders. The
cumulative amount of distributions in excess of income and losses that were
allocable to the common unitholders' minority interests that were allocated to
common shareholders at March 31, 1998 was $16,538.
As of March 31, 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.
<PAGE>
Note 3 -- Merger Agreement
On November 12, 1997 and as amended on February 1, 1998, the Company entered
into a definitive merger agreement (as amended, the "Merger Agreement") with
Horizon Group, Inc. ("Horizon") for an aggregate consideration of approximately
$945,200, including the assumption of $556,900 of Horizon debt and transaction
costs. Upon completion of the transaction, the Company will own and operate 49
outlet centers totaling approximately 13,634,261 square feet of gross leasable
area ("GLA").
Under the terms of the Merger Agreement, the Company will pay a fixed exchange
ratio of 0.20 of a share of 8.5% Series B Cumulative Participating Convertible
Preferred Stock ("Series B Convertible Preferred Stock") and 0.597 of a share of
Common Stock for each share of common stock of Horizon. In addition, each common
unit in Horizon Partnership will entitle the holder to receive 0.9193 of a
Common Unit of the Operating Partnership that will be exchangeable for a like
number of shares of Common Stock of the Company.
Immediately prior to the merger, Horizon's operating partnership, Horizon Glen
Outlet Centers Limited Partnership ("Horizon Partnership"), will contribute 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.
Immediately after the merger, all of the common equity of HGP will be
distributed to the convertible preferred and common shareholders and unitholders
of the Company and the shareholders and limited partners of Horizon based on
their ownership in the Company immediately following the merger. It is presently
expected that following the merger one share of common stock of HGP will be
distributed for every 20 shares of Common Stock or Common Units of the Company,
and that approximately 1.196 shares of common stock of HGP will be distributed
for every 20 shares of Series B Convertible Preferred Stock held in the Company.
Upon consummation of the merger, the closing of the merger, the Company will pay
a special cash distribution of $0.60 per share of Series B Convertible Preferred
Stock and $0.50 per share/unit of Common Stock, Series C Cumulative
Participating Convertible Redeemable Preferred Stock/Unit ("Series C Preferred
Security") and Common Unit, as applicable. Shareholders and limited partners in
Horizon will not participate in this distribution. HGP will own and operate 15
outlet centers (including Indiana Factory Shops and Nebraska Crossing Factory
Stores, collectively the "Prime Transferred Properties", which will be acquired
from the Company as discussed below) totaling 3,084,823 square feet of GLA.
In connection with the closing of the merger, the Company intends to sell the
Prime Transferred Properties to HGP for an aggregate consideration of
approximately $26,000 resulting in a loss of approximately $15,000. The ultimate
disposition of the Prime Transferred Properties is contingent upon the
successful completion of the merger and, prior to the merger closing date, the
Company can elect, at its sole discretion, not to effectuate the sale of the
Prime Transferred Properties even if the merger is consummated. While the
Company intends to sell the Prime Transferred Properties to HGP, it is not
contractually committed to do so. No assurance can be made that the sale of the
Prime Transferred Properties will be effectuated.
The merger will be accounted for as a purchase. The record date for determining
the shareholders entitled to notice of, and vote at, the 1998 meeting of
shareholders was April 24, 1999. The 1998 Annual Meeting of Shareholders will be
held on June 12, 1998. Completion of the merger remains subject to the approval
of each company's shareholders and limited partners and the satisfaction of
other conditions. The closing of the merger is expected to occur on or about
June 15, 1998. The exchange of shares of Horizon for shares of the Company will
be made on a tax-free basis.
<PAGE>
On December 10, 1997, a shareholder of Horizon filed a purported class action
lawsuit in the Circuit Court for Muskegon County, Michigan (the "Court") 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 is unfair and inadequate. The lawsuit requests that
such merger be enjoined or, in the event that the purported transaction is
consummated, that it be rescinded or damages be awarded to the class members. On
January 16, 1998, the defendants answered the complaint, denying that the
Horizon board of directors breached their fiduciary duties and denying that such
consideration is unfair or inadequate. On May 4, 1998, counsel for the parties
appeared before the Court for the purpose of reporting that a settlement of the
case had been reached subject to the satisfaction of several conditions
including the completion of the merger. The general terms of the settlement are
contained in a Memorandum of Understanding ("Memorandum") among counsel for the
parties dated as of May 7, 1998. Under the Memorandum, subject to the terms of
the Stipulation of Settlement, the defendants will pay to class counsel for
their fees and expenses, subject to approval by the Court. The Company believes
that the amount of the settlement will not have a material adverse effect on the
consolidated financials statements of the Company.
In April 1998, the Company accepted loan commitments from Nomura Asset Capital
Corporation ("Nomura") to provide (i) $305,000 of debt financing in connection
with the merger and (ii) bridge loan financing to HGP.
The $305,000 loan commitment to the Company contemplates (i) a $180,000
nonrecourse permanent loan (the "Permanent Loan"), (ii) a $85,000 full recourse
bridge loan (the "Bridge Loan"), and (iii) a $40,000 full recourse unsecured
corporate line of credit (the "Unsecured Corporate Line"). The Permanent Loan
will (i) be collateralized by first mortgages on four factory outlet centers,
(ii) bear a fixed rate of interest equal to the yield on the 10-year U.S.
Treasury plus 1.50%, and (iii) require monthly principal and interest payments
pursuant to a 27-year amortization schedule. The Bridge Loan will (i) be
collateralized by first mortgages on six factory outlet centers, (ii) bear a
variable rate of interest equal to 30-day LIBOR plus 1.25%, (iii) mature in
three years, and (iv) require monthly interest-only payments. The Unsecured
Corporate Line will (i) bear a variable rate of interest equal to 30-day LIBOR
plus 1.75%, (ii) mature in three years, and (iii) require monthly interest-only
payments.
The proceeds from the Permanent Loan, the Bridge Loan, and the Unsecured
Corporate Line will be used (i) to repay $190,800 of debt outstanding under
various existing Horizon loans, (ii) to pay loan fees and closing costs of
approximately $2,200, (iii) for development and acquisition activities, and (iv)
for general corporate purposes.
In connection with a $120,000 loan commitment granted to HGP (the "HGP Mortgage
Loan"), the proceeds of such will be used to repay certain debt outstanding
under various existing Horizon loans, the Company has agreed to guarantee
$10,000 of such obligations. The Company will be released from its guaranty if
at any time during the term of the loan, HGP raises at least $50,000 of equity
and not less than $50,000 of such equity is used to repay the HGP Mortgage Loan.
Each of the Nomura commitments is subject to customary conditions, including
execution of definitive loan agreements as well as consummation of the proposed
merger.
<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. Such forward-looking statements are subject to certain risks and
uncertainties; including, but not limited to, the effects of future events on
the Company's financial performance; the risk that the Company may be unable to
finance its planned 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.
Results of Operations
General
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 28 operating factory
outlet centers totaling 7,237,000 square feet of gross leasable area ("GLA") at
March 31, 1998, compared to 24 operating factory outlet centers totaling
6,138,000 square feet of GLA at March 31, 1997.
During the three months ending March 31, 1998, the Company opened an expansion
to an existing factory outlet center totaling 20,000 square feet of GLA. During
1997, the Company purchased seven factory outlet centers totaling 1,221,000
square feet of GLA and opened expansions to existing factory outlet centers
totaling 224,000 square feet of GLA. Additionally, the Company acquired its
joint venture partner's 25% ownership interest in Buckeye Factory Shops Limited
Partnership ("Buckeye") on September 2, 1997, and now owns 100% of this factory
outlet center with 205,000 square feet of GLA. The significant increase in the
number of the Company's operating properties and total GLA since March 31, 1997
are collectively referred to as the "Portfolio Expansion".
<PAGE>
<TABLE>
Portfolio of Properties
March 31, 1998
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Grand GLA Percentage
Factory Outlet Centers Phase Opening Date (Sq. Ft.) Leased(1)
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<S> <C> <C> <C> <C>
Niagara International Factory Outlets (2)--Niagara Falls, New York...... I July 1982 300,000 95%
II August 1985 234,000 78
--------- ----
534,000 88
Prime Retail Outlets of Kittery (3)--Kittery Maine...................... I April 1984 25,000 100
II May 1984 78,000 100
III August 1989 18,000 100
--------- ----
121,000 100
Latham Factory Outlets (3)--Latham, New York............................ I August 1987 43,000 100
Warehouse Row Factory Shops (4)--Chattanooga, Tennessee................. I November 1989 95,000 96
II August 1993 26,000 74
--------- ----
121,000 91
Oak Creek Factory Stores (5)--Sedona, Arizona .......................... I August 1990 82,000 100
San Marcos Factory Shops--San Marcos, Texas............................. I August 1990 177,000 100
II August 1991 70,000 100
III August 1993 117,000 100
IIIB November 1994 20,000 91
IIIC November 1995 35,000 100
--------- ----
419,000 100
Shasta Factory Stores (2)--Anderson, California......................... I August 1990 165,000 94
Factory Outlets at Post Falls (5)--Post Falls, Idaho ................... I July 1991 111,000 94
II July 1992 68,000 81
--------- ----
179,000 89
Gulf Coast Factory Shops--Ellenton, Florida............................. I October 1991 187,000 96
II August 1993 123,000 100
III October 1996 30,000 100
--------- ----
340,000 98
Triangle Factory Shops--Raleigh-Durham, North Carolina.................. I October 1991 181,000 100
II July 1996 6,000 100
--------- ----
187,000 100
Coral Isle Factory Shops--Naples/Marco Island, Florida.................. I December 1991 94,000 100
II December 1992 32,000 100
III March 1998 20,000 60
--------- ----
146,000 95
Castle Rock Factory Shops--Castle Rock, Colorado........................ I November 1992 181,000 97
II August 1993 94,000 98
III November 1993 95,000 93
IV August 1997 110,000 100
--------- ----
480,000 97
Bend Factory Outlets (5)--Bend, Oregon.................................. I December 1992 97,000 97
Ohio Factory Shops--Jeffersonville, Ohio................................ I July 1993 186,000 93
II November 1993 100,000 100
IIB November 1994 13,000 75
IIIA August 1996 35,000 100
IIIB March 1997 73,000 72
--------- ----
407,000 91
</TABLE>
<PAGE>
<TABLE>
Portfolio of Properties (continued)
March 31, 1998
<CAPTION>
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Grand GLA Percentage
Factory Outlet Centers Phase Opening Date (Sq. Ft.) Leased(1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gainesville Factory Shops--Gainesville, Texas........................... I August 1993 210,000 82%
II November 1994 106,000 81
--------- ----
316,000 81
Nebraska Crossing Factory Stores (6)--Gretna, Nebraska.................. I October 1993 192,000 83
Rocky Mountain Factory Stores--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
Oxnard Factory Outlet (7)--Oxnard, California........................... I June 1994 148,000 88
Grove City Factory Shops--Grove City, Pennsylvania...................... I August 1994 235,000 100
II November 1994 95,000 100
III November 1995 85,000 97
IV November 1996 118,000 99
--------- ----
533,000 99
Huntley Factory Shops--Huntley, Illinois................................ I August 1994 192,000 97
II November 1995 90,000 83
--------- ----
282,000 92
Florida Keys Factory Shops--Florida City, Florida....................... I September 1994 208,000 91
Indiana Factory Shops (6)--Daleville, Indiana........................... I November 1994 208,000 88
IIA November 1996 26,000 35
--------- ----
234,000 82
Kansas City Factory Outlets--Odessa, Missouri........................... I July 1995 191,000 97
II November 1996 105,000 53
--------- ----
296,000 81
Magnolia Bluff Factory Shops (8)--Darien, Georgia....................... I July 1995 238,000 88
IIA November 1995 49,000 99
IIB July 1996 20,000 100
--------- ----
307,000 91
Arizona Factory Shops (9)--Phoenix, Arizona............................. I September 1995 217,000 97
II September 1996 109,000 92
--------- ----
326,000 95
Gulfport Factory Shops (10)--Gulfport, Mississippi...................... I November 1995 228,000 97
IIA November 1996 40,000 100
IIB November 1997 38,000 38
--------- ----
306,000 90
Buckeye Factory Shops (11)--Burbank, Ohio............................... I November 1996 205,000 94
Carolina Factory Shops--Gaffney, South Carolina......................... I November 1996 235,000 96
--------- ----
Total Factory Outlet Centers (12) 7,237,000 93%
========= ====
===================================================================================================================================
</TABLE>
Notes:
(1) Percentage reflects fully executed leases as of March 31, 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.
<PAGE>
(4) 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 64% leased as of March 31, 1998.
(5) The Company acquired this factory outlet center on February 13, 1997 from
an unrelated third party.
(6) Upon consummation of the Merger Agreement, the Company intends to sell this
factory outlet center (see Note 3 - "Merger Agreement" of the Notes to
Consolidated Financial Statements).
(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% ownership
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 Partnership 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 90% leased
as of March 31, 1998.
Comparison of the three months ended March 31, 1998 to the three months ended
March 31, 1997
Summary
The Company reported net income of $1,990 and $902 for the three months ended
March 31, 1998 and 1997, respectively. For the three months ended March 31,
1998, the net loss applicable to common shareholders was $2,176, or $0.08 per
common share on a basic and diluted basis. For the three months ended March 31,
1997, the net loss applicable to common shareholders was $2,191, or $0.15 per
common share on a basic and diluted basis.
Revenues
Total revenues were $37,508 for the three months ended March 31, 1998 compared
to $30,162 for the three months ended March 31, 1997, an increase of $7,346, or
24.4%. Base rents increased $5,017, or 27.8%, in 1998 compared to 1997.
Straight-line rents (included in base rents) were $(26) and $125 for the three
months ended March 31, 1998 and 1997, respectively. These increases are
primarily due to the Portfolio Expansion.
Percentage rents, which represent rents based on a percentage of sales volume
above a specified threshold, increased $196, or 29.3%, during the three months
ended March 31, 1998 compared to the same period in 1997. This increase was
attributable to the Portfolio Expansion. For the three months ended March 31,
1998, same-space sales in centers owned by the Company were flat compared to the
same period in 1997. "Same-space sales" is defined as the weighted average sales
per square foot reported by merchants for space open since January 1, 1997. The
Company's same-space sales for the year ended December 31, 1997 were $231.89 per
square foot. For the three months ended March 31, 1998, same-store sales
decreased by 2.4% compared to the same period in 1997. The decrease in
same-store sales is primarily due to the shift of the Easter shopping period
from March in 1997 to April in 1998. "Same-store sales" is defined as the
weighted average sales per square foot reported by merchants for stores opened
since January 1, 1997. Tenant reimbursements, which represent the contractual
recovery from tenants of certain operating expenses, increased by $1,794, or
20.0%, during the three months ended March 31, 1998 over the same period in
1997. These increases were primarily due to the Portfolio Expansion.
<PAGE>
Interest and other income increased by $339, or 13.7%, to $2,817 during the
three months ended March 31, 1998 as compared to $2,478 for the three months
ended March 31, 1997. The increase reflects higher temporary tenant income of
$490, other ancillary income of $160 and lease termination income of $92
partially offset by a decrease in interest income of $403. 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 $1,720, or 25.9%, to $8,353 for the
three months ended March 31, 1998 compared to $6,633 for the same period in
1997. Real estate taxes increased by $466, or 19.5%, to $2,856 for the three
months ended March 31, 1998, from $2,390 in the same period for 1997. The
increases in property operating expenses and real estate taxes are primarily due
to the Portfolio Expansion. As shown in TABLE 2, depreciation and amortization
expense increased by $1,495, or 23.6%, to $7,823 for the three months ended
March 31, 1998, compared to $6,328 for 1997. This increase results from the
depreciation and amortization of assets associated with the Portfolio Expansion.
TABLE 2 -- Components of Depreciation and Amortization Expense
The components of depreciation and amortization expense are summarized as
follows:
- --------------------------------------------------------------------------------
Three months ended March 31, 1998 1997
- --------------------------------------------------------------------------------
Building and improvements $4,324 $3,258
Land improvements 830 627
Tenant improvements 2,075 1,827
Furniture and fixtures 282 202
Leasing commissions(1) 312 414
------ ------
Total $7,823 $6,328
====== ======
================================================================================
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.
<PAGE>
TABLE 3 -- Components of Interest Expense
The components of interest expense are summarized as follows:
- --------------------------------------------------------------------------------
Three months ended March 31, 1998 1997
- --------------------------------------------------------------------------------
Interest incurred $9,276 $9,109
Interest capitalized (1,388) (845)
Interest earned on interest rate protection contracts (23) (39)
Amortization of deferred financing costs 167 608
Amortization of interest rate protection contracts 342 336
------ ------
Total $8,374 $9,169
====== ======
================================================================================
As shown in TABLE 3, interest expense for the three months ended March 31, 1998
decreased by $795, or 8.7%, to $8,374 compared to $9,169 for the same period in
1997. This decrease reflects (i) an increase in the amount of interest
capitalized in connection with development projects of $543 and, (ii) a decrease
in amortization of deferred financing costs of $441. Partially offsetting these
items were (i) higher interest incurred of $167, (ii) a reduction in interest
earned on interest rate protection contracts of $16, and (iii) an increase in
amortization of interest rate protection contracts of $6.
<PAGE>
The increase in interest incurred is primarily attributable to an increase of
approximately $3,342 in the Company's average debt outstanding during the three
months ended March 31, 1998 compared to the same period in 1997 offset by a
slight decrease in the weighted average interest rate for the three months ended
March 31, 1998 compared to the same period in 1997. The weighted average
interest rates were 7.10% and 7.12% for the 1998 and 1997 periods, respectively.
Other charges increased by $160, or 20.0%, to $959. This increase reflects
higher ground lease expense of $121 and marketing costs of $85. Partially
offsetting these increases was a reduction in other miscellaneous charges of
$46.
In connection with re-leasing space to new merchants, the Company incurred $195
and $235 in capital expenditures during the three months ended March 31, 1998
and 1997, respectively.
Liquidity and Capital Resources
Sources and Uses of Cash
For the three months ended March 31, 1998, net cash provided by operating
activities was $25,578, cash used in investing activities was $27,402, and net
cash used in financing activities was $4,026.
The primary uses of cash for investing activities during the three months ended
March 31, 1998 included: (i) costs associated with the development and
construction of two new factory outlet centers and expansions to existing
factory outlet centers aggregating 751,000 square feet of GLA which are expected
to open during 1998 (20,000 square feet of GLA opened during the first quarter
of 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, and (iii) costs for pre-development activities associated with
future developments.
<PAGE>
The primary uses of cash for financing activities during the three months ended
March 31, 1998 were (i) principal repayments on notes payable of $22,102, (ii)
preferred and common stock distributions of $11,498, (iii) distributions to
minority interests (including distributions to limited partners of the Operating
Partnership) of $2,952, and (iv) deferred financing costs of $85. Such uses were
partially offset by proceeds from new borrowings of $32,611 during the period.
Shelf Registration
On January 10, 1997, the Company filed a Form S-3 Registration Statement (the
"Shelf Registration") with the Securities and Exchange Commission to register
$100,000 of the Company's equity securities. As a result of the 1997 Stock
Offering, as of March 31, 1998, the Company had $66,122 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, 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. The Company cannot predict if any transaction will be
consummated, nor the terms or form of consideration required.
Merger Agreement
On November 12, 1997 and as amended on February 1, 1998, the Company entered
into a definitive merger agreement (as amended, the "Merger Agreement") with
Horizon Group, Inc. ("Horizon") for an aggregate consideration of approximately
$945,200, including the assumption of $556,900 of Horizon debt and transaction
costs. Upon completion of the transaction, the Company will own and operate 49
outlet centers totaling approximately 13,634,261 square feet of gross leasable
area ("GLA").
Under the terms of the Merger Agreement, the Company will pay a fixed exchange
ratio of 0.20 of a share of 8.5% Series B Cumulative Participating Convertible
Preferred Stock ("Series B Convertible Preferred Stock") and 0.597 of a share of
Common Stock for each share of common stock of Horizon. In addition, each common
unit in Horizon Partnership will entitle the holder to receive 0.9193 of a
Common Unit of the Operating Partnership that will be exchangeable for a like
number of shares of Common Stock of the Company.
Immediately prior to the merger, Horizon's operating partnership, Horizon Glen
Outlet Centers Limited Partnership ("Horizon Partnership"), will contribute 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.
Immediately after the merger, all of the common equity of HGP will be
distributed to the convertible preferred and common shareholders and unitholders
of the Company and the shareholders and limited partners of Horizon based on
their ownership in the Company immediately following the merger. It is presently
expected that following the merger one share of common stock of HGP will be
distributed for every 20 shares of Common Stock or Common Units of the Company,
and that approximately 1.196 shares of common stock of HGP will be distributed
for every 20 shares of Series B Convertible Preferred Stock held in the Company.
<PAGE>
Upon consummation of the merger, the closing of the merger, the Company will pay
a special cash distribution of $0.60 per share of Series B Convertible Preferred
Stock and $0.50 per share/unit of Common Stock, Series C Cumulative
Participating Convertible Redeemable Preferred Stock/Unit ("Series C Preferred
Security") and Common Unit, as applicable. Shareholders and limited partners in
Horizon will not participate in this distribution. HGP will own and operate 15
outlet centers (including Indiana Factory Shops and Nebraska Crossing Factory
Stores, collectively the "Prime Transferred Properties", which will be acquired
from the Company as discussed below) totaling 3,084,823 square feet of GLA.
In connection with the closing of the merger, the Company intends to sell the
Prime Transferred Properties to HGP for an aggregate consideration of
approximately $26,000 resulting in a loss of approximately $15,000. The ultimate
disposition of the Prime Transferred Properties is contingent upon the
successful completion of the merger and, prior to the merger closing date, the
Company can elect, at its sole discretion, not to effectuate the sale of the
Prime Transferred Properties even if the merger is consummated. While the
Company intends to sell the Prime Transferred Properties to HGP, it is not
contractually committed to do so. No assurance can be made that the sale of the
Prime Transferred Properties will be effectuated.
The merger will be accounted for as a purchase. The record date for determining
the shareholders entitled to notice of, and vote at, the 1998 meeting of
shareholders was April 24, 1999. The 1998 Annual Meeting of Shareholders will be
held on June 12, 1998. Completion of the merger remains subject to the approval
of each company's shareholders and limited partners and the satisfaction of
other conditions. The closing of the merger is expected to occur on or about
June 15, 1998. The exchange of shares of Horizon for shares of the Company will
be made on a tax-free basis.
On December 10, 1997, a shareholder of Horizon filed a purported class action
lawsuit in the Circuit Court for Muskegon County, Michigan (the "Court") 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 is unfair and inadequate. The lawsuit requests that
such merger be enjoined or, in the event that the purported transaction is
consummated, that it be rescinded or damages be awarded to the class members. On
January 16, 1998, the defendants answered the complaint, denying that the
Horizon board of directors breached their fiduciary duties and denying that such
consideration is unfair or inadequate. On May 4, 1998, counsel for the parties
appeared before the Court for the purpose of reporting that a settlement of the
case had been reached subject to the satisfaction of several conditions
including the completion of the merger. The general terms of the settlement are
contained in a Memorandum of Understanding ("Memorandum") among counsel for the
parties dated as of May 7, 1998. Under the Memorandum, subject to the terms of
the Stipulation of Settlement, the defendants will pay to class counsel for
their fees and expenses, subject to approval by the Court. The Company believes
that the amount of the settlement will not have a material adverse effect on the
consolidated financials statements of the Company.
In April 1998, the Company accepted loan commitments from Nomura Asset Capital
Corporation ("Nomura") to provide (i) $305,000 of debt financing in connection
with the merger and (ii) bridge loan financing to HGP.
<PAGE>
The $305,000 loan commitment to the Company contemplates (i) a $180,000
nonrecourse permanent loan (the "Permanent Loan"), (ii) a $85,000 full recourse
bridge loan (the "Bridge Loan"), and (iii) a $40,000 full recourse unsecured
corporate line of credit (the "Unsecured Corporate Line"). The Permanent Loan
will (i) be collateralized by first mortgages on four factory outlet centers,
(ii) bear a fixed rate of interest equal to the yield on the 10-year U.S.
Treasury plus 1.50%, and (iii) require monthly principal and interest payments
pursuant to a 27-year amortization schedule. The Bridge Loan will (i) be
collateralized by first mortgages on six factory outlet centers, (ii) bear a
variable rate of interest equal to 30-day LIBOR plus 1.25%, (iii) mature in
three years, and (iv) require monthly interest-only payments. The Unsecured
Corporate Line will (i) bear a variable rate of interest equal to 30-day LIBOR
plus 1.75%, (ii) mature in three years, and (iii) require monthly interest-only
payments.
The proceeds from the Permanent Loan, the Bridge Loan, and the Unsecured
Corporate Line will be used (i) to repay $190,800 of debt outstanding under
various existing Horizon lines, (ii) to pay loan fees and closing costs of
approximately $2,200, (iii) for development and acquisition activities, and (iv)
for general corporate purposes.
In connection with a $120,000 loan commitment granted to HGP (the "HGP Mortgage
Loan"), the proceeds of such will be used to repay certain debt outstanding
under various existing Horizon loans, the Company has agreed to guarantee
$10,000 of such obligations. The Company will be released from its guaranty if
at any time during the term of the loan, HGP raises at least $50,000 of equity
and not less than $50,000 of such equity is used to repay the HGP Mortgage Loan.
Each of the Nomura commitments is subject to customary conditions, including
execution of definitive loan agreements as well as consummation of the proposed
merger.
Planned Development
Management believes that there is sufficient demand for continued development of
new factory outlet centers and expansions of certain existing factory outlet
centers. The Company expects to open approximately 751,000 square feet of GLA
during 1998 including the Outlet Village of Lebanon which opened on April 17,
1998 and another new factory outlet center currently under construction (the
Outlet Village of Hagerstown). The Outlet Village of Lebanon is located in
Lebanon, Tennessee, approximately 25 miles east of Nashville, and contains
208,000 square feet of GLA and features approximately 50 designer and specialty
outlet stores. The Outlet Village of Lebanon was approximately 86% occupied on
its grand opening. At March 31, 1998, the remaining budgeted capital
expenditures for 1998 planned developments aggregated approximately $59,637,
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 $4,106.
Management believes that the Company has sufficient capital and capital
commitments to fund the remaining capital expenditures associated with its 1997
and 1998 development activities. These funding requirements are expected to be
met, in large part, with the proceeds from various loan facilities including the
financing of certain unencumbered properties. If adequate financing for such
development and expansion is not available, the Company may not be able to
develop new centers or expand existing centers at currently planned levels.
<PAGE>
The Company currently plans to open one new factory outlet center and several
expansions in 1999 that are expected to contain approximately 400,000 square
feet of GLA, in the aggregate, and have a total expected development cost of
approximately $56,000. The Company expects to fund the development cost of these
projects from (i) certain line of credit facilities, (ii) joint venture
partners, (iii) retained cash flow from operations, (iv) construction loans, and
(v) the potential sale of common or preferred equity in the public or private
capital markets. As of March 31, 1998, the Company had committed approximately
$4,000 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 $525,774 and $515,265 at March 31, 1998
and December 31, 1997, respectively. At March 31, 1998, such indebtedness had a
weighted average maturity of 6.1 years and bore interest at a weighted average
interest rate of 7.10% per annum. At March 31, 1998, $74,452, or 14.2%, of such
indebtedness bore interest at fixed rates and $451,322, or 85.8%, of such
indebtedness, including $28,250 of tax-exempt bonds, bore interest at
variable-rates. Of the variable rate indebtedness outstanding at March 31, 1998,
$355,178 is scheduled to convert to a fixed rate of 7.782% in November 1998 for
the remaining five-year term of such indebtedness.
At March 31, 1998, the Company held interest rate protection contracts on all
$28,250 of its floating rate tax-exempt indebtedness which expire in 1999 and
approximately $355,178 of other floating rate indebtedness which expire in
November 1998 (or approximately 85.0% of its total floating rate indebtedness).
In addition, the Company held additional interest rate protection contracts on
$43,900 (of which $22,000 expires in July 1998 and $21,900 expires in April
1999) of the $355,178 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 March 31, 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 10.5% Series A Senior Cumulative
Preferred Stock ("Senior Preferred Stock") at $25.00 per share; and (d) the
total debt of the Company) was 41.9%.
The Company is obligated to repay $10,851 of mortgage indebtedness during the
remainder of 1998 and $63,790 in 1999. Annualized cumulative dividends on the
Company's Senior Preferred Stock, Series B Convertible Preferred Stock and
Series C Preferred Securities outstanding March 31, 1998 are $6,038, $6,336, and
$5,149, respectively. These dividends are payable quarterly, in arrears.
The Company anticipates that cash flow from operations, together with cash
available from borrowings and other sources, will be sufficient to satisfy its
debt service obligations, expected distribution and dividend requirements and
operating cash needs for the next year.
Economic Conditions
Substantially all of the merchants' leases contain provisions that somewhat
mitigate the impact of inflation. Such provisions include clauses providing for
increases in base rent and clauses enabling the Company to receive percentage
rentals based on merchants' gross sales. Substantially all leases require
merchants to pay their proportionate share of all operating expenses, including
common area maintenance, real estate taxes and promotion, thereby reducing the
Company's exposure to increased costs and operating expenses resulting from
inflation.
<PAGE>
At March 31, 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 and the Company's operations will
not be adversely impacted by year 2000 software failures.
Funds from Operations
Management believes that to facilitate a clear understanding of the Company's
consolidated operating results, Funds from Operations ("FFO") should be
considered in conjunction with net income (loss) presented in accordance with
GAAP. Management believes that FFO is an important and widely used measure of
the operating performance of REITs which provides a relevant basis for
comparison to other REITs. Therefore, FFO is presented to assist investors in
analyzing the performance of the Company. FFO represents net income (loss)
(computed 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 has adopted the National Association of Real Estate Investment
Trusts' definition of FFO. However, 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. FFO does not represent cash flow from operating activities
in accordance with GAAP and is not indicative of cash available to fund all of
the Company's cash needs. FFO should not be considered as an alternative to net
income or any other GAAP measure as an indicator of performance and should not
be considered as an alternative to cash flows as a measure of liquidity or the
ability to service debt or to pay dividends and distributions.
TABLE 4 provides a reconciliation of income before allocation to minority
interests and preferred shareholders to FFO for the three months ended March 31,
1998 and 1997. FFO increased $5,203, or 50.8% to $15,455 for the three months
ended March 31, 1998 from $10,252 for the three months ended March 31, 1997.
This increase was primarily due to the Portfolio Expansion.
<PAGE>
TABLE 4 -- Funds from Operations
- --------------------------------------------------------------------------------
Three months ended March 31, 1998 1997
- --------------------------------------------------------------------------------
Income before allocations to minority interests and
preferred shareholders $ 7,451 $ 3,493
FFO adjustments:
Real estate depreciation and amortization 7,702 6,274
Unconsolidated joint venture adjustments 302 485
------- -------
FFO before allocations to minority interests and
preferred shareholders $15,455 $10,252
======= =======
================================================================================
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
On December 10, 1997, a shareholder of Horizon filed a purported class action
lawsuit in the Circuit Court for Muskegon County, Michigan (the "Court") 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 is unfair and inadequate. The lawsuit requests that
such merger be enjoined or, in the event that the purported transaction is
consummated, that it be rescinded or damages be awarded to the class members. On
January 16, 1998, the defendants answered the complaint, denying that the
Horizon board of directors breached their fiduciary duties and denying that such
consideration is unfair or inadequate. On May 4, 1998, counsel for the parties
appeared before the Court for the purpose of reporting that a settlement of the
case had been reached subject to the satisfaction of several conditions
including the completion of the merger. The general terms of the settlement are
contained in a Memorandum of Understanding ("Memorandum") among counsel for the
parties dated as of May 7, 1998. Under the Memorandum, subject to the terms of
the Stipulation of Settlement, the defendants will pay to class counsel for
their fees and expenses, subject to approval by the Court. The Company believes
that the amount of the settlement will not have a material adverse effect on the
consolidated financials statements of the Company.
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 exhibit is included in this Form 10-Q:
Exhibit 12.1 -- Ratio of Earnings to Fixed Charges
and Preferred Stock Distributions and Dividends
(b) Reports on Form 8-K:
On February 3, 1998, the Company filed a Current
Report on Form 8-K, dated February 1, 1998,
announcing that the Company's previously announced
merger agreement with Horizon Group, Inc. dated
November 12, 1997 was amended and restated on
February 1, 1998. No financial statements 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.
PRIME RETAIL, INC.
Registrant
Date: May 15, 1998 /s/ Abraham Rosenthal
------------ ----------------------
Abraham Rosenthal
Chief Executive Officer
Date: May 15, 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)
Three Months Ended March 31
------------------------------------
1998 1997
-------------- --------------
Income before minority interest $ 7,451 $ 3,493
Interest incurred 9,693 9,600
Amortization of capitalized interest 94 79
Amortization of debt issuance costs 167 608
Amortization of interest rate protection
contracts 342 336
Less interest earned on interest rate
protection contracts (23) (39)
Less capitalized interest (1,388) (915)
-------------- --------------
Earnings 16,336 13,162
-------------- --------------
Interest incurred 9,693 9,600
Amortization of debt issuance costs 167 608
Amortization of interest rate protection
contracts 342 336
Preferred stock distributions and dividends 4,166 3,093
-------------- --------------
Combined Fixed Charges and
Preferred Stock Distributions
and Dividends 14,368 13,637
-------------- --------------
Excess of Combined Fixed Charges
and Preferred Stock Distributions
and Dividends over Earnings $ (475)
==============
Ratio of Earnings to Combined
Fixed Charges and Preferred Stock
Distributions and Dividends 1.14 x
==============
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<PERIOD-END> Mar-31-1998
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