United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended June 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, for the Transition Period
From -------- to -----------
Commission file number 001-13301
----------------------
PRIME RETAIL, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 38-2559212
- ----------------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 East Pratt Street
Nineteenth Floor
Baltimore, Maryland 21202
- ------------------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
(410) 234-0782
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address, or former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
As of August 5, 1999, the issuer had outstanding 43,273,772 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 June 30, 1999 and
December 31, 1998 ....................................................... 1
Consolidated Statements of Operations for the three and six months
ended June 30, 1999 and 1998............................................. 2
Consolidated Statements of Cash Flows for the six
months ended June 30, 1999 and 1998...................................... 3
Notes to the Consolidated Financial Statements........................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk............27
PART II: OTHER INFORMATION
Item 1. Legal Proceedings................................................... 28
Item 2. Changes in Securities............................................... 28
Item 3. Defaults Upon Senior Securities..................................... 28
Item 4. Submission of Matters to a Vote of Security Holders................. 28
Item 5. Other Information................................................... 29
Item 6. Exhibits or Reports on Form 8-K..................................... 29
Signatures................................................................... 30
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
<TABLE>
Prime Retail, Inc.
Consolidated Balance Sheets
(in thousands, except share information)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investment in rental property:
Land $ 206,362 $ 206,386
Buildings and improvements 1,768,719 1,753,641
Property under development 65,193 45,068
Furniture and equipment 13,892 10,627
------------ ------------
2,054,166 2,015,722
Accumulated depreciation (161,011) (127,747)
------------ ------------
1,893,155 1,887,975
Cash and cash equivalents 1,606 5,765
Restricted cash 34,997 34,969
Accounts receivable, net 24,475 21,233
Deferred charges, net 11,295 12,518
Investment in partnerships 9,575 8,386
Other assets 6,694 5,618
------------ -----------
Total assets $ 1,981,797 $ 1,976,464
============ ===========
Liabilities and Shareholders' Equity
Bonds payable $ 32,900 $ 32,900
Notes payable 1,256,126 1,184,607
Accrued interest 7,774 7,878
Real estate taxes payable 18,481 11,229
Construction costs payable 2,386 3,754
Accounts payable and other liabilities 61,903 69,879
------------ ------------
Total liabilities 1,379,570 1,310,247
Minority interests 9,569 22,483
Series C Cumulative Convertible Redeemable Preferred Stock,
1,063,636 shares issued and outstanding at June 30, 1999 10,636 -
Shareholders' equity:
Shares of preferred stock, 24,315,000 shares authorized:
10.5% Series A Senior Cumulative Preferred Stock, $0.01
par value (liquidation preference of $57,500), 2,300,000
shares issued and outstanding 23 23
8.5% Series B Cumulative Participating Convertible Preferred
Stock, $0.01 par value (liquidation preference of $195,703)
7,828,125 shares issued and outstanding 78 78
Series C Cumulative Participating Convertible Redeemable
Preferred Stock, $.01 par value (liquidation preference
$60,000), 4,363,636 shares issued and outstanding
at December 31, 1998 - 44
Shares of common stock, 150,000,000 shares authorized:
Common stock, $0.01 par value, 43,276,552 and 42,736,742
shares issued and outstanding, respectively 433 427
Additional paid-in capital 707,759 759,105
Distributions in excess of net income (126,271) (115,943)
------------ ------------
Total shareholders' equity 582,022 643,734
------------ ------------
Total liabilities and shareholders' equity $ 1,981,797 $ 1,976,464
============ ============
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
Prime Retail, Inc.
Consolidated Statements of Operations
(in thousands, except per share information)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Three months Six months
ended June 30 ended June 30
----------------------------- -----------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Base rents $ 48,356 $ 28,047 $ 97,658 $51,130
Percentage rents 1,978 1,174 4,040 2,039
Tenant reimbursements 22,609 13,534 46,297 24,647
Interest and other 3,170 2,351 6,892 5,191
-------- -------- -------- -------
Total revenues 76,113 45,106 154,887 83,007
Expenses
Property operating 17,204 10,563 36,141 19,282
Real estate taxes 5,727 3,364 11,293 6,220
Depreciation and amortization 18,658 9,935 37,015 17,758
Corporate general and administrative 2,799 1,756 5,587 3,448
Interest 22,463 10,939 43,725 19,313
Other charges 1,585 1,390 4,151 2,376
-------- -------- -------- -------
Total expenses 68,436 37,947 137,912 68,397
-------- -------- -------- -------
Income before loss on sale of real estate,
minority interests, and extraordinary loss 7,677 7,159 16,975 14,610
Loss on sale of real estate - (15,461) - (15,461)
-------- -------- -------- -------
Income (loss) before minority interests and
extraordinary loss 7,677 (8,302) 16,975 (851)
(Income) loss allocated to minority interests (534) 3,219 (534) (2,242)
-------- -------- -------- -------
Income (loss) before extraordinary loss 7,143 (5,083) 16,441 (3,093)
Extraordinary loss on early extinguishment of debt,
net of minority interests of $534 (2,106) - (2,106) -
-------- -------- -------- -------
Net income (loss) 5,037 (5,083) 14,335 (3,093)
(Income) loss allocated to preferred shareholders (6,046) (6,741) 1,754 (10,907)
-------- -------- -------- -------
Net income (loss) applicable to common shares $ (1,009) $(11,824) $16,089 $ (14,000)
======== ======== ======== =======
Earnings per common share - basic:
Income (loss) before extraordinary item $ 0.03 $ (0.40) $ 0.42 $ (0.49)
Extraordinary loss (0.05) - (0.05) -
-------- -------- -------- -------
Net income (loss) $ (0.02) $ (0.40) $ 0.37 $ (0.49)
======== ======== ======== =======
Earnings per common share - diluted:
Income (loss) before extraordinary item $ 0.03 $ (0.40) $ 0.08 $ (0.49)
Extraordinary loss (0.05) - (0.04) -
-------- -------- -------- -------
Net income (loss) $ (0.02) $ (0.40) $ 0.04 $ (0.49)
======== ======== ======== =======
Weighted average common shares outstanding:
Basic 43,186 29,859 43,069 28,584
======== ======== ======= =========
Dilulted 43,186 29,859 55,720 28,584
======== ======== ======= =========
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
Prime Retail, Inc.
Consolidated Statements of Cash Flows
(in thousands)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Six months ended June 30, 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income (loss) $14,335 $ (3,093)
Adjustments to reconcile net income to
net cash provided by operating activities:
Income allocated to minority interests - 2,242
Loss on sale of real estate - 15,461
Depreciation 36,610 17,120
Amortization of deferred financing costs and
interest rate protection contracts 800 1,329
Amortization of leasing commissions 405 638
Provision for uncollectible accounts receivable 1,249 530
Changes in operating assets and liabilities:
Increase in accounts receivable (4,475) (6,032)
Decrease in other assets 1,952 3,788
Increase (decrease) in accrued interest (104) 570
Decrease in accounts payable and other liabilities (693) (14,382)
------ ------
Net cash provided by operating activities 50,079 18,171
Investing Activities
Proceeds from sale of Prime Transferred Properties - 26,015
Acquisition of Horizon, net of cash acquired and
spin-off of HGP - (35,124)
Purchase of buildings and improvements (39,774) (23,820)
Increase in property under development (7,078) (45,448)
------ ------
Net Cash used in investing activities (46,852) (78,377)
Financing Activities
Proceeds from notes payable 124,136 368,128
Principal repayments on notes payable (85,617) (241,512)
Deferred financing costs - (2,730)
Series C preferred stock redemption (1,038) -
Distributions and dividends paid (38,381) (40,970)
Distributions to minority interests (6,486) (10,346)
------ ------
Net cash provided by (used in) financing activities (7,386) 72,570
------ ------
Increase (decrease) in cash and cash equivalents (4,159) 12,364
Cash and cash equivalents at beginning of period 5,765 6,373
------ ------
Cash and cash equivalents at end of period $ 1,606 $ 18,737
====== ======
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
Prime Retail, Inc.
Consolidated Statements of Cash Flows (continued)
(in thousands)
Supplemental Disclosure of Noncash Investing and Financing Activities:
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Six months ended June 30, 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Series C Preferred Stock redeemed in exchange for issuance of note
payable $33,000 $ -
======= =======
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Prime Retail, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and unit information)
Note 1 - Interim Financial Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. In the opinion of
management, all adjustments consisting only of recurring accruals considered
necessary for a fair presentation have been included. Operating results for such
interim periods are not necessarily indicative of the results which may be
expected for a full fiscal year. For further information, refer to the
consolidated financial statements and footnotes included in Prime Retail, Inc.'s
(the "Company") annual report on Form 10-K for the year ended December 31, 1998.
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 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 period financial information has been reclassified
to conform with the current period presentation.
Note 2 - Earnings Per Share
The Company reports earnings per share ("EPS") in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" which
specifies the method of computation, presentation, and disclosure. SFAS No. 128
requires the presentation of basic EPS and diluted EPS. Basic EPS is calculated
by dividing net income available to common shareholders by the weighted average
number of shares outstanding during the period. Diluted EPS includes the
potentially dilutive effect, if any, which would occur if outstanding (i)
options to purchase Common Stock were exercised, (ii) Common Units were
converted into shares of Common Stock, (iii) shares of Series C Preferred Stock
were converted into shares of Common Stock, and (iv) Series B Convertible
Preferred Stock were converted into shares of Common Stock. For the six months
ended June 30, 1999, a redemption discount of $13,718 related to the Company's
agreement to repurchase its Series C Preferred Stock (see Note 5 - "Redeemable
Equity" of the Notes to Consolidated Financial Statements) was excluded from the
numerator and incremental shares of 12,651 are included in the denominator of
the computation of diluted EPS. For the three months ended June 30, 1999 and for
the three and six months ended June 30, 1998, diluted EPS is equivalent to basic
EPS as the effect of these exercises and conversions was anti-dilutive.
<PAGE>
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Three months Six months
ended June 30 ended June 30
----------------------------- -----------------------------
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Income (loss) before extraordinary loss and
minority interests $ 7,677 $ (8,302) $16,975 $ (851)
(Income) loss allocated to minority interests (534) 3,219 (534) (2,242)
------- -------- ------- --------
Net income (loss) before extraordinary loss 7,143 (5,083) 16,441 (3,093)
(Income) loss allocated to preferred shareholders (6,046) (6,741) 1,754 (10,907)
------- -------- ------- --------
Numerator for basic earnings per share -
income (loss) available to common shareholders
before extraordinary loss 1,097 (11,824) 18,195 (14,000)
Effect of dilutive securities:
Series C preferred stock redemption discount - - (13,718) -
------- -------- ------- --------
Numerator for diluted earnings per share -
income (loss) available to common shareholders
before extraordinary loss $ 1,097 $(11,824) $ 4,477 $ (14,000)
======= ======== ======== =========
Denominator:
Denominator for basic earnings per share -
weighted average common s hares outstanding 43,186 29,859 43,069 28,584
Effect of dilutive securities:
Series C preferred shares - - 1,623 -
Limited partner common units - - 11,028 -
------- -------- ------- --------
- - 12,651 -
------- -------- ------- --------
Denominator for diluted earnings per share -
adjusted weighted average common shares
outstanding 43,186 29,859 55,720 28,584
====== ======= ======= ========
Basic earnings per common share before
extraordinary loss $ 0.03 $ (0.40) $ 0.42 $ (0.49)
====== ======= ======= ========
Diluted earnings per common share before
extraordinary loss $ 0.03 $ (0.40) $ 0.08 $ (0.49)
====== ======= ======= ========
====================================================================================================================================
</TABLE>
<PAGE>
Note 3 - Minority Interests
In prior periods, cash distributions and losses allocated to minority interests
reduced the minority interests balance to zero. After reducing the minority
interests balance to zero, additional distributions and losses of $4,342
incurred during the six months ended June 30, 1998 that were otherwise allocable
to minority interests were allocated to common shareholders. During the six
months ended June 30, 1999, the cumulative amount of distributions and losses
that were allocable to minority interests that were previously allocated to
common shareholders was reduced by $3,907 and the remaining balance at June 30,
1999 was $10,722.
Note 4 - Notes Payable
On August 11, 1999, the Company obtained a commitment from a group of
institutional investors to provide a $40,000 line of credit (the "Line of
Credit"). The Line of Credit (i) bears interest at a fixed-rate of 11.0%, (ii)
requires monthly interest-only payments, and (iii) matures in nine months. The
Line of Credit may be repaid at anytime without penalty. Upon repayment of the
loan, the initial investors will also be entitled to receive a cash payment
designed to increase the internal rate of return to such investors by 4.0% per
annum (the "Cash Payment"). The Line of Credit is secured by a pledge of the
Company's interest in a subsidiary of the Company that will be formed to engage
in the design, development and operation of a virtual outlet center on the
internet. The Company will provide the institutional investors with warrants to
purchase a 5.0% interest in this e-commerce subsidiary for a nominal sum,
subject to adjustment under certain circumstances. The investors must elect to
forgo all or a portion of the Cash Payment or the warrants in the event this
subsidiary completes an initial public offering prior to the scheduled maturity
date of the Line of Credit. Closing of the Line of Credit is subject to
customary conditions, including the execution of definitive loan documents.
On July 11, 1999, the Company's $20,000 unsecured line of credit (the "Corporate
Line") was renewed and increased to $25,000. The purpose of the Corporate Line
is to provide working capital to facilitate the funding of short-term operating
cash needs of the Company. The Corporate Line bears an interest rate of 30-day
LIBOR plus 2.50% and matures on July 11, 2000. No amounts were outstanding as of
June 30, 1999.
On April 27, 1999, the Company closed on a $63,000 debt financing with a
financial institution that provided approximately $27,900 of net proceeds. The
$63,000 note is (i) collateralized by a first mortgage on Prime Outlets at
Niagara Falls USA, (ii) bears interest at a fixed rate of 7.604%, (iii) requires
monthly principal and interest payments of $450 pursuant to a 30-year
amortization schedule, and (iv) matures in 10 years. In connection with the debt
refinancing, the Company incurred an extraordinary loss on early extinguishment
of debt of $2,106, net of minority interests of $534, representing a pre-payment
penalty.
As of June 30, 1999, the Company is a guarantor or otherwise obligated with
respect to an aggregate of $35,284 of the indebtedness of Horizon Group
Properties, Inc. and its affiliates ("HGP"). As of June 30, 1999, the components
of such indebtedness included (i) a mortgage loan with an outstanding balance of
$11,793 which bears interest at a rate of prime, matures on August 31, 1999, and
is collateralized by a first mortgage on Phases II and III of property located
in Patchogue, New York; (ii) a mortgage loan with an outstanding balance of
$10,637 which bears interest at a rate of 10.25%, matures in July 2018, and is
collateralized by a first mortgage on Phase I of property located in Patchogue,
New York; (iii) a mortgage loan with an outstanding balance of $2,611 which
bears interest at a rate of LIBOR plus 2.50%, matures in December 2002, and is
collateralized by a first mortgage on a office building in Muskegon, Michigan;
and (iv) a secured loan with an outstanding balance of $243 which bears interest
at a rate of prime, matures in December 2000 and is collateralized by furniture
and fixtures. In addition,
<PAGE>
the Company is a guarantor of $10,000 of obligations under HGP's secured credit
facility which bears a rate of interest of LIBOR plus 1.90%, matures in July
2001, and is collateralized by seven properties located throughout the United
States. The Company is pursuing an agreement with HGP pursuant to which it would
purchase HGP's and its affiliates' general and limited partnership interests and
a portion of a third party's limited partnership interest in the Bellport Outlet
Center and undeveloped parcels located in Patchogue, New York. If the agreement
is consummated, it is expected that the aggregate indebtedness of HGP for which
the Company remains contingently liable as a guarantor would be reduced to
$12,854.
Note 5 - Redeemable Equity
On March 31, 1999, the Company entered into an agreement providing for the
repurchase of all of its outstanding shares of Series C Preferred Stock for
$43,636 or $10.00 per share. The agreement provides for the repurchase to occur
in two stages. In the first stage, on March 31, 1999, the Company repurchased
3,300,000 shares of the Series C Preferred Stock in exchange for the issuance of
a $33,000 unsecured promissory note. The unsecured promissory note bears
interest at a rate of 12.0% per annum, matures on September 30, 1999, requires
monthly interest-only payments and may be prepaid by the Company at any time
without penalty. Second, the Company is obligated to repurchase the remaining
1,063,636 outstanding shares of its Series C Preferred Stock for an aggregate
purchase price of $10,636 on or before September 30, 1999.
On March 31, 1999 the remaining 1,063,636 outstanding shares of Series C
Preferred Stock were reclassified to redeemable equity at their aggregate
repurchase price of $10,636 in the Consolidated Balance Sheets. Additionally, a
redemption discount of $13,718 representing the excess of the carrying amount of
the Series C Preferred Stock over its redemption amount is reflected in the
Consolidated Statements of Operations as a loss allocated to preferred
shareholders.
Note 6 - Legal Proceedings
In the ordinary course of business the Company is subject to certain legal
actions. While any litigation contains an element of uncertainty, management
believes the losses, if any, resulting from such matters, including the matter
described below, will not have a material adverse effect on the consolidated
financial statements of the Company.
The Company is defendant in a lawsuit filed on July 27, 1998 in the U.S.
District Court for the Central District of California whereby the plaintiff
alleges that the Company and its related entities overcharged tenants for common
area maintenance expenditures. The outcome of, and the ultimate liability of the
Company, if any, from, this lawsuit cannot currently be predicted. Management
believes that the Company has acted properly and intends to defend this lawsuit
vigorously.
Note 7 - Dispositions
On August 6, 1999, the Company entered into a definitive agreement to sell three
factory outlet centers, including two future expansions, to a new joint venture
(the "Venture) between an affiliate of Estein & Associates USA, Ltd. ("Estein")
and the Company. The total purchase price for the three centers, including the
two expansions, is $274,000. The purchase price includes an $8,000 payment to
the Company for a ten-year covenant-not-to-compete and a $6,000 payment to the
Company for a ten-year licensing agreement with the Venture to continue the use
of the "Prime Outlets" brand name.
<PAGE>
The Venture expects to close on the three centers and two expansions in
accordance with the following schedule:
- --------------------------------------------------------------------------------
Expected
Closing
Date Center GLA
- --------------------------------------------------------------------------------
11/18/99 Prime Outlets at Birch Run 724,000
2/15/00 Prime Outlets at Williamsburg 274,000
4/15/00 Prime Outlets at Hagerstown 321,000
4/15/00 Prime Outlets at Hagerstown (Phase III) 162,000
9/30/00 Prime Outlets at Williamsburg (Phase II) 70,000
---------
TOTAL 1,551,000
=========
================================================================================
The Venture expects to purchase the three outlet centers and two expansions
subject to $151,500 of new first mortgage indebtedness, including a $64,500
"wrap-around" first mortgage to be provided by the Company on the Birch Run
center. The balance of the purchase price ($122,500) is expected to be funded
70% by Estein in cash ($85,750) and 30% by the Company ($36,750) in the form of
a credit to its capital account. All of the first mortgage debt is expected to
be for a ten-year term at a fixed interest rate of 7.75%, requiring monthly
payments of principal and interest pursuant to a 25-year amortization schedule.
The Company expects to realize an aggregate of approximately $78,000 of cash
proceeds, net of (i) all closing costs, (ii) the cost of completing the
expansions, and (iii) the Company's approximate $10,000 net investment in the
"wrap-around" first mortgage being provided on the Birch Run center. Prior to
the closing, the Company expects to receive an additional $10,000 of net
proceeds from the refinancing of the existing Williamsburg center.
<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. The words "believes", "expects", "anticipates", "estimates" and
similar words or expressions are generally intended to identify forward-looking
statements. These statements contain potential risks and uncertainties and,
therefore, actual results may differ materially. 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 manufacturers' 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; 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; and risks associated with the impact
of the Year 2000 issue on the processing of date-sensitive information by the
Company's computerized information systems as well as the Company's tenants and
vendors.
Merger with Horizon Group, Inc.
On June 15, 1998, the merger and other transactions (collectively, the "Merger
Transactions") between the Company and Horizon Group, Inc. ("Horizon") were
consummated for an aggregate consideration of $1,134,682, including liabilities
assumed and related transaction costs. The merger has been accounted for using
the purchase method of accounting and the purchase price of $1,134,682 was
allocated to the assets acquired and the liabilities assumed based on estimates
of their respective fair values. Accordingly, the operating results of the 22
properties acquired from Horizon have been included in the Company's
consolidated results of operations commencing on June 15, 1998. See "Liquidity
and Capital Resources - Business Combination" for further information.
<PAGE>
Portfolio Growth
The Company has grown by developing and acquiring manufacturers' outlet centers
and expanding certain of its existing manufacturers' outlet centers. As
summarized in TABLE 1, the Company's manufacturers' outlet portfolio consisted
of 50 manufacturers' outlet centers totaling 14,343,000 square feet of gross
leasable area ("GLA") at June 30, 1999, compared to 49 operating manufacturers'
outlet centers totaling 13,706,000 square feet of GLA at June 30, 1998.
During the six months ended June 30, 1999, the Company opened an expansion to an
existing manufacturers' outlet center totaling 21,000 square feet of GLA. In
connection with the Merger Transactions which were consummated on June 15, 1998,
the Company acquired and integrated 22 of Horizon's manufacturers' outlet
centers into its existing portfolio adding 6,626,000 square feet of GLA in the
aggregate and sold two manufacturers' outlet centers to Horizon Group
Properties, Inc. ("HGP") totaling 426,000 square feet of GLA. During 1998, the
Company opened two new manufacturers' outlet centers and added nine expansions
to existing manufacturers' outlet centers totaling 931,000 square feet of GLA in
the aggregate (of which one new manufacturers' outlet center and four expansions
to existing manufacturers' outlet centers totaling 289,000 square feet of GLA
opened during the six months ended June 30, 1998). The significant increase in
the number of the Company's operating properties and total GLA since June 30,
1998 are collectively referred to as the "Portfolio Expansion and the Horizon
Merger".
<PAGE>
<TABLE>
Portfolio of Properties
June 30, 1999
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Grand GLA Percentage
Manufacturers' Outlet Centers Phase Opening Date (Sq. Ft.) Leased(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Outlets at Kittery - Kittery Maine.............................. I April 1984 25,000 100%
II May 1984 78,000 99
III August 1989 18,000 100
IV May 1998 10,000 100
------- ---
131,000 100
Prime Outlets at Fremont (2) - Fremont, Indiana........................ I October 1985 118,000 100
II November 1993 51,000 100
III October 1994 60,000 100
------- ---
229,000 100
Prime Outlets at Birch Run (2) - Birch Run, Michigan................... I-XVI Various 591,000 99
XVII-XVIII
1997 133,000 95
------- ---
724,000 99
Prime Outlets at Latham - Latham, New York............................. I August 1987 43,000 98
Prime Outlets at Michigan City (2) - Michigan City, Indiana............ I November 1987 199,000 100
II May 1988 130,000 97
III July 1991 36,000 97
IV July 1994 42,000 93
V December 1994 26,000 98
VI May 1995 58,000 96
------- ---
491,000 98
Prime Outlets at Williamsburg (2) - Williamsburg, Virginia............. I April 1988 67,000 100
II November 1988 60,000 100
III October 1990 49,000 91
IV 1995 98,000 100
------- ---
274,000 98
Prime Outlets at Kenosha (2) - Kenosha, Wisconsin...................... I September 1988 89,000 100
II July 1989 65,000 97
III May 1990 115,000 86
------- ---
269,000 93
Prime Outlets at Silverthorne (2) - Silverthorne, Colorado............. I November 1988 95,000 90
II November 1990 75,000 95
III November 1993 88,000 83
------- ---
258,000 89
Prime Outlets at Edinburgh (2) - Edinburgh, Indiana.................... I 1988 156,000 100
II November 1994 142,000 100
------- ---
298,000 100
Prime Outlets at Burlington (2) - Burlington, Washington .............. I May 1989 89,000 87
II October 1989 36,000 100
III April 1993 49,000 97
------- ---
174,000 92
Prime Outlets at Queenstown (2) - Queenstown, Maryland................. I June 1989 67,000 100
II June 1990 55,000 88
III January 1991 16,000 97
IV June 1992 14,000 97
V August 1993 69,000 100
------- ---
221,000 97
</TABLE>
<PAGE>
<TABLE>
Portfolio of Properties (continued)
June 30, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Grand GLA Percentage
Manufacturers; Outlet Centers Phase Opening Date (Sq. Ft.) Leased(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Outlets at Hillsboro (2) - Hillsboro, Texas...................... I October 1989 95,000 97%
II January 1992 101,000 95
III May 1995 163,000 91
------- --
359,000 94
Prime Outlets at Oshkosh (2) - Oshkosh, Wisconsin...................... I November 1989 215,000 96
II July 1991 45,000 99
------- --
260,000 97
Prime Outlets at Warehouse Row (3) - Chattanooga, Tennessee............ I November 1989 95,000 94
Prime Outlets at Gilroy (2) - Gilroy, California....................... I January 1990 94,000 100
II August 1991 109,000 100
III October 1992 137,000 96
IV July 1994 170,000 96
V November 1995 69,000 100
------- ---
579,000 98
Prime Outlets at Perryville (2) - Perryville, Maryland................. I June 1990 148,000 96
Prime Outlets at Sedona - Sedona, Arizona ............................. I August 1990 82,000 96
Prime Outlets at San Marcos - San Marcos, Texas........................ I August 1990 177,000 100
II August 1991 70,000 92
III August 1993 117,000 78
IIIB November 1994 20,000 91
IIIC November 1995 35,000 100
IIID May 1998 18,000 100
------- ---
437,000 92
Prime Outlets at Anderson - Anderson, California....................... I August 1990 165,000 93
Prime Outlets at Post Falls - Post Falls, Idaho ....................... I July 1991 111,000 82
II July 1992 68,000 85
------- --
179,000 83
Prime Outlets at Ellenton - Ellenton, Florida.......................... I October 1991 187,000 99
II August 1993 123,000 100
III October 1996 30,000 100
IV November 1998 141,000 94
------- ---
481,000 98
Prime Outlets at Morrisville - Raleigh - Durham, North Carolina........ I October 1991 181,000 87
II July 1996 6,000 100
------- ---
187,000 88
Prime Outlets at Naples - Naples/Marco Island, Florida................. I December 1991 94,000 96
II December 1992 32,000 100
III March 1998 20,000 98
------- ---
146,000 97
Prime Outlets at Conroe (2) - Conroe, Texas............................ I January 1992 93,000 94
II June 1994 163,000 88
III October 1994 26,000 79
------- ---
282,000 89
Prime Outlets at Niagara Falls USA - Niagara Falls, New York........... I July 1992 300,000 97
II August 1995 234,000 90
------- ---
534,000 94
</TABLE>
<PAGE>
<TABLE>
Portfolio of Properties (continued)
June 30, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Grand GLA Percentage
Manufacturers' Outlet Centers Phase Opening Date (Sq. Ft.) Leased(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Outlets at Woodbury (2) - Woodbury, Minnesota.................... I July 1992 129,000 91%
II November 1993 100,000 88
III August 1994 21,000 100
------- ---
250,000 90
Prime Outlets at Calhoun (2) - Calhoun, Georgia........................ I October 1992 123,000 100
II October 1995 131,000 92
------- ---
254,000 96
Prime Outlets at Castle Rock - Castle Rock, Colorado................... I November 1992 181,000 98
II August 1993 94,000 97
III November 1993 95,000 100
IV August 1997 110,000 97
------- ---
480,000 98
Prime Outlets at Bend - Bend, Oregon................................... I December 1992 97,000 100
II September 1998 35,000 99
------- ---
132,000 100
Prime Outlets at Jeffersonville II (2) - Jeffersonville, Ohio.......... I March 1993 126,000 80
II August 1993 123,000 73
III October 1994 65,000 77
------- ---
314,000 76
Prime Outlets at Jeffersonville I - Jeffersonville, Ohio............... I July 1993 186,000 90
II November 1993 100,000 81
IIB November 1994 13,000 64
IIIA August 1996 35,000 100
IIIB March 1997 73,000 100
------- ---
407,000 89
Prime Outlets at Gainesville - Gainesville, Texas...................... I August 1993 210,000 89
II November 1994 106,000 95
------- ---
316,000 91
Prime Outlets at Loveland - Loveland, Colorado......................... I May 1994 139,000 97
II November 1994 50,000 100
III May 1995 114,000 88
IV May 1996 25,000 100
------- ---
328,000 94
Prime Outlets at Oxnard (4) - Oxnard, California....................... I June 1994 148,000 92
Prime Outlets at Grove City - Grove City, Pennsylvania................. I August 1994 235,000 100
II November 1994 95,000 100
III November 1995 85,000 97
IV November 1996 118,000 99
------- ---
533,000 99
Prime Outlets at Huntley - Huntley, Illinois........................... I August 1994 192,000 97
II November 1995 90,000 83
------- ---
282,000 93
Prime Outlets at Florida City - Florida City, Florida.................. I September 1994 208,000 92
Prime Outlets at Pismo Beach (2) - Pismo Beach, California............. I November 1994 148,000 98
Prime Outlets at Tracy (2) - Tracy, California........................ I November 1994 153,000 94
Prime Outlets at Vero Beach (2) - Vero Beach, Florida.................. I November 1994 210,000 95
II August 1995 116,000 99
------- ---
326,000 96
</TABLE>
<PAGE>
<TABLE>
Portfolio of Properties (continued)
June 30, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Grand GLA Percentage
Manufacturers' Outlet Centers Phase Opening Date (Sq. Ft.) Leased(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Outlets at Waterloo (2) - Waterloo, New York..................... I March 1995 208,000 99%
II September 1996 115,000 100
III April 1997 68,000 100
------- ---
391,000 100
Prime Outlets at Odessa - Odessa, Missouri............................. I July 1995 191,000 93
II November 1996 105,000 58
------- ---
296,000 81
Prime Outlets at Darien (5) - Darien, Georgia.......................... I July 1995 238,000 87
IIA November 1995 49,000 93
IIB July 1996 20,000 100
------- ---
307,000 89
Prime Outlets at New River (4) - Phoenix, Arizona...................... I September 1995 217,000 91
II September 1996 109,000 83
------- ---
326,000 88
Prime Outlets at Gulfport (5) - Gulfport, Mississippi.................. I November 1995 228,000 95
IIA November 1996 40,000 73
IIB November 1997 38,000 91
------- ---
306,000 92
Prime Outlets at Lodi - Burbank, Ohio.................................. I November 1996 205,000 96
IIA May 1998 33,000 92
IIB November 1998 75,000 83
------- ---
313,000 93
Prime Outlets at Gaffney - Gaffney, South Carolina..................... I November 1996 235,000 96
II July 1998 70,000 92
------- ---
305,000 95
Prime Outlets at Lee (2) - Lee, Massachusetts.......................... I June 1997 224,000 100
Prime Outlets at Lebanon - Lebanon, Tennessee......................... I April 1998 208,000 98
IIA March 1999 21,000 79
------- ---
229,000 96
Prime Outlets at Hagerstown - Hagerstown, Maryland..................... I August 1998 218,000 100
II November 1998 103,000 93
------- ---
321,000 97
---------- ---
Total Manufacturers' Outlet Centers (6)................................ 14,343,000 94%
========== ===
====================================================================================================================================
</TABLE>
Notes:
(1) Percentage reflects fully executed leases as of June 30, 1999 as a percent
of square feet of GLA.
(2) The Company acquired this manufacturers' outlet center on June 15, 1998 as
a result of its merger with Horizon.
(3) The Company owns a 2% partnership interest as the sole general partner but
is entitled to 99% of the property's operating cash flow and net proceeds
from a sale or refinancing. This mixed-use project includes 154,000 square
feet of office space which is not included in this table and such space was
98% leased as of June 30, 1999.
(4) The Company owns 50% of this manufacturers' outlet center in a joint
venture partnership with an unrelated third party.
(5) The Company operates this manufacturers' outlet center pursuant to a
long-term ground lease under which the Company receives the economic
benefit of a 100% ownership interest.
(6) The Company also owns three community centers not included in this table
containing 424,000 square feet of GLA in the aggregate that were 86% leased
as of June 30, 1999.
<PAGE>
Results of Operations
Comparison of the three months ended June 30, 1999 to the three months ended
June 30, 1998
Summary
The Company reported net income (loss)of $5,037 and $(5,083)for the three months
ended June 30, 1999 and 1998, respectively. During the second quarter of 1999,
the Company recorded an extraordinary loss of $2,106 (net of minority interests
of $534), relating to the early extinguishment of certain long-term debt. For
the three months ended June 30, 1999, the net loss applicable to common
shareholders was $1,009, or $0.02 per common share on a basic and diluted basis.
During the second quarter of 1998, the Company recorded a loss on sale of real
estate of $15,461 in connection with the Merger Transactions. For the three
months ended June 30, 1998, the net loss applicable to common shareholders was
$11,824, or $0.40 per common share on a basic and diluted basis.
Revenues
Total revenues were $76,113 for the three months ended June 30, 1999 compared to
$45,106 for the three months ended June 30, 1998, an increase of $31,007, or
68.7%. Base rents increased $20,309, or 72.4%, in 1999 compared to 1998.
Straight-line rents (included in base rents) were $221 and $286 for the three
months ended June 30, 1999 and 1998, respectively. These increases are primarily
due to the Portfolio Expansion and the Horizon Merger.
Percentage rents, which represent rents based on a percentage of sales volume
above a specified threshold, increased $804, or 68.5%, during the three months
ended June 30, 1999 compared to the same period in 1998. This increase was
attributable to the Portfolio Expansion and the Horizon Merger. Tenant
reimbursements, which represent the contractual recovery from tenants of certain
operating expenses, increased by $9,075, or 67.1%, during the three months ended
June 30, 1999 over the same period in 1998. These increases were primarily due
to the Portfolio Expansion and the Horizon Merger.
Interest and other income increased by $819, or 34.8%, to $3,170 during the
three months ended June 30, 1999 as compared to $2,351 for the three months
ended June 30, 1998. The increase is due to higher (i) temporary tenant income
of $350, (ii) management fee income of $197, (iii) municipal assistance income
of $78 and (iv) other ancillary income of $194.
Expenses
Property operating expenses increased by $6,641, or 62.9%, to $17,204 for the
three months ended June 30, 1999 compared to $10,563 for the same period
in 1998. Real estate taxes increased by $2,363, or 70.2%, to $5,727 for the
three months ended June 30, 1999 from $3,364 in the same period for 1998. The
increases in property operating expenses and real estate taxes are primarily due
to the Portfolio Expansion and the Horizon Merger. As shown in TABLE 2,
depreciation and amortization expense increased by $8,723, or 87.8%, to $18,658
for the three months ended June 30, 1999 compared to $9,935 for 1998. This
increase results from the depreciation and amortization of assets associated
with the Portfolio Expansion and the Horizon Merger.
<PAGE>
TABLE 2 - Components of Depreciation and Amortization Expense
The components of depreciation and amortization expense are summarized as
follows:
- --------------------------------------------------------------------------------
Three months ended June 30, 1999 1998
- --------------------------------------------------------------------------------
Building and improvements $10,116 $5,669
Land improvements 1,452 889
Tenant improvements 6,398 2,743
Furniture and fixtures 472 308
Leasing commissions 220 326
------- ------
Total $18,658 $9,935
======= ======
================================================================================
TABLE 3 - Components of Interest Expense
The components of interest expense are summarized as follows:
- --------------------------------------------------------------------------------
Three months ended June 30, 1999 1998
- --------------------------------------------------------------------------------
Interest incurred $22,807 $11,508
Interest capitalized (1,144) (1,389)
Amortization of deferred financing costs 797 481
Amortization of interest rate protection
contracts 3 339
------- -------
Total $22,463 $10,939
======= =======
================================================================================
As shown in TABLE 3, interest expense for the three months ended June 30, 1999
increased by $11,524, or 105.3%, to $22,463 compared to $10,939 for the same
period in 1998. This increase reflects (i) higher interest incurred of $11,299,
(ii) an increase in amortization of deferred financing costs of $316 and (iii) a
reduction in the amount of interest capitalized in connection with development
projects of $245. Partially offsetting these items was a decrease in
amortization of interest rate protection contracts of $336.
The increase in interest incurred is primarily attributable to an increase of
$635,015 in the Company's average debt outstanding during the three months ended
June 30, 1999 compared to the same period in 1998 offset by a slight decrease in
the weighted average interest rate for the six months ended June 30, 1999
compared to the same period in 1998. The weighted average interest rates were
7.19% and 7.25% for the 1999 and 1998 periods, respectively.
Other charges increased by $195, or 14.0%, to $1,585 during the three months
ended June 30, 1999 as compared to $1,390 for the three months ended June 30,
1998. This increase is primarily due to higher ground lease rent of $135 and
other miscellaneous charges of $60.
In connection with re-leasing space to new merchants, the Company incurred $53
and $245 in capital expenditures during the three months ended June 30, 1999 and
1998, respectively.
<PAGE>
Comparison of the six months ended June 30, 1999 to the six months ended June
30, 1998
Summary
The Company reported net income (loss) of $14,335 and $(3,093) for the six
months ended June 30, 1999 and 1998, respectively. During the second quarter of
1999, the Company recorded an extraordinary loss of $2,106 (net of minority
interest of $534), relating to the early extinguishment of certain long-term
debt. For the six months ended June 30, 1999, the net income applicable to
common shareholders was $16,089, or $0.37 and $0.04 per common share on a basic
and diluted basis, respectively. During the second quarter of 1998, the Company
recorded a loss on sale of real estate of $15,461 in connection with the Merger
Transactions. For the six months ended June 30, 1998, the net loss applicable to
common shareholders was $14,000, or $0.49 per common share on a basic and
diluted basis.
Revenues
Total revenues were $154,887 for the six months ended June 30, 1999 compared to
$83,007 for the six months ended June 30, 1998, an increase of $71,880, or
86.6%. Base rents increased $46,528, or 91.0%, in 1999 compared to 1998.
Straight-line rents (included in base rents) were $430 and $261 for the six
months ended June 30, 1999 and 1998, respectively. These increases are primarily
due to the Portfolio Expansion and the Horizon Merger.
Percentage rents, which represent rents based on a percentage of sales volume
above a specified threshold, increased $2,001, or 98.1%, during the six months
ended June 30, 1999 compared to the same period in 1998. This increase was
attributable to the Portfolio Expansion and the Horizon Merger. For the six
months ended June 30, 1999, same-space sales in centers owned by the Company
increased 0.7% compared to the same period in 1998. "Same-space sales" is
defined as the weighted average sales per square foot reported by merchants for
space open since January 1, 1998. The Company's pro forma same-space sales for
the year ended December 31, 1998 were $248.44 per square foot. For the six
months ended June 30, 1999, same-store sales decreased 0.8% compared to the same
period in 1998. "Same-store sales" is defined as the weighted average sales per
square foot reported by merchants for stores opened since January 1, 1998.
Tenant reimbursements, which represent the contractual recovery from tenants of
certain operating expenses, increased by $21,650, or 87.8%, during the six
months ended June 30, 1999 over the same period in 1998. These increases were
primarily due to the Portfolio Expansion and the Horizon Merger.
Interest and other income increased by $1,701, or 32.8%, to $6,892 during the
six months ended June 30, 1999 as compared to $5,191 for the six months ended
June 30, 1998. The increase is due to increases in (i) temporary tenant income
of $842, (ii) municipal assistance income of $328, (iii) lease commissions and
management fee income of $244, and (iv) other miscellaneous income of $287.
Expenses
Property operating expenses increased by $16,859, or 87.4%, to $36,141 for the
six months ended June 30, 1999 compared to $19,282 for the same period in 1998.
Real estate taxes increased by $5,073, or 81.6%, to $11,293 for the six months
ended June 30, 1999 from $6,220 in the same period for 1998. The increases in
property operating expenses and real estate taxes are primarily due to the
Portfolio Expansion and the Horizon Merger. As shown in TABLE 4, depreciation
and amortization expense increased by $19,257, or 108.4%, to $37,015 for the six
months ended June 30, 1999 compared to $17,758 for 1998. This increase results
from the depreciation and amortization of assets associated with the Portfolio
Expansion and the Horizon Merger.
<PAGE>
TABLE 4 - Components of Depreciation and Amortization Expense
The components of depreciation and amortization expense are summarized as
follows:
- --------------------------------------------------------------------------------
Six months ended June 30, 1999 1998
- --------------------------------------------------------------------------------
Building and improvements $20,237 $ 9,993
Land improvements 2,830 1,719
Tenant improvements 12,582 4,818
Furniture and fixtures 961 590
Leasing commissions 405 638
------- -------
Total $37,015 $17,758
======= =======
================================================================================
TABLE 5 - Components of Interest Expense
The components of interest expense are summarized as follows:
- --------------------------------------------------------------------------------
Six months ended June 30, 1999 1998
- --------------------------------------------------------------------------------
Interest incurred $44,493 $20,761
Interest capitalized (2,218) (2,777)
Amortization of deferred financing costs 1,390 648
Amortization of interest rate protection contracts 60 681
------- -------
Total $43,725 $19,313
======= =======
================================================================================
As shown in TABLE 5, interest expense for the six months ended June 30, 1999
increased by $24,412, or 124.9%, to $43,725 compared to $19,313 for the same
period in 1998. This increase reflects (i) higher interest incurred of $23,732,
(ii) an increase in amortization of deferred financing costs of $742 and (iii) a
reduction in the amount of interest capitalized in connection with development
projects of $559. Partially offsetting these items was a decrease in
amortization of interest rate protection contracts of $621.
The increase in interest incurred is primarily attributable to an increase of
$668,938 in the Company's average debt outstanding during the six months ended
June 30, 1999 compared to the same period in 1998 offset by a slight decrease in
the weighted average interest rate for the six months ended June 30, 1999
compared to the same period in 1998. The weighted average interest rates were
7.18% and 7.22% for the 1999 and 1998 periods, respectively.
Other charges increased by $1,775, or 74.7%, to $4,151. This increase reflects
(i) increased selling and marketing costs of $1,072 associated with the
Company's operation of the outlet store known as Designer Connection and (ii) a
higher provision for uncollectible accounts of $719. These increases were offset
by a decrease in miscellaneous charges of $16.
In connection with re-leasing space to new merchants, the Company incurred $839
and $441 in capital expenditures during the six months ended June 30, 1999 and
1998, respectively.
<PAGE>
Liquidity and Capital Resources
Sources and Uses of Cash
For the six months ended June 30, 1999, net cash provided by operating
activities was $50,079 cash used in investing activities was $46,852 and net
cash used in financing activities was $7,386.
The primary uses of cash for investing activities during the six months ended
June 30, 1999 included: (i) costs associated with the development and
construction of two expansions to existing manufacturers' outlet centers
aggregating 101,000 square feet of GLA which opened during 1999 (of which 21,000
and 80,000 square feet opened in March and August, respectively), (ii) costs
associated with the completion of two new manufacturers' outlet centers and
expansions to existing manufacturers' outlet centers aggregating 931,000 square
feet of GLA which opened during 1998, and (iii) costs for pre-development
activities associated with future developments.
The primary uses of cash for financing activities during the six months ended
June 30, 1999 were (i) principal repayments on notes payable of $85,617, (ii)
preferred and common stock distributions of $38,381, (iii) distributions to
minority interests (including distributions to limited partners of the Operating
Partnership) of $6,486, and (iv) Series C preferred stock redemption costs of
$1,038. Such uses were partially offset by proceeds from new borrowings of
$124,136 during the period.
The Company anticipates that cash flow from (i) certain line of credit
facilities, (ii) operations, (iii) new borrowings, (iv) refinancing of certain
existing debt, (v) the potential sale of a joint venture interest in certain
manufacturers' outlet centers, and (vi) the potential sale of equity or debt
securities in the public or private capital markets will be sufficient to
satisfy its debt service obligations, expected distribution and dividend
requirements and operating cash needs for the next year. There can be no
assurance that the Company will be successful in obtaining the required amount
of funds for these items or that the terms of capital raising activities, if
any, will be as favorable as the Company has experienced in prior periods. At
June 30, 1999, unused commitments available for borrowings under various loan
facilities were $26,054 in the aggregate.
Debt Repayments and Preferred Stock Dividends
The Company's aggregate indebtedness was $1,289,026 and $1,217,507 at June 30,
1999 and December 31, 1998, respectively. At June 30, 1999, such indebtedness
had a weighted average maturity of 5.5 years and bore interest at a weighted
average interest rate of 7.24% per annum. At June 30, 1999, $1,013,675, or
78.6%, of such indebtedness bore interest at fixed rates and $275,351, or 21.4%,
of such indebtedness, including $28,250 of tax-exempt bonds, bore interest at
variable rates.
The Company is obligated to repay $102,714 of indebtedness during the remainder
of 1999 and $44,789 in 2000. The 1999 principal obligations include a $33,000
unsecured promissory note issued on March 31, 1999 in connection with the
Company's repurchase of 3,300,000 shares of Series C Cumulative Convertible
Redeemable Preferred Stock ("Series C Preferred Stock"). The annualized
cumulative dividends on the Company's Series A Senior Cumulative Preferred Stock
("Senior Preferred Stock"), Series B Cumulative Participating Convertible
Preferred Stock ("Series B Convertible Preferred Stock"), and Series C Preferred
Stock outstanding as of June 30, 1999 are $6,038, $16,635, and $1,255,
respectively. These dividends are paid quarterly, in arrears.
<PAGE>
Repurchase of Shares of Series C Preferred Stock
On March 31, 1999, the Company entered into an agreement providing for the
repurchase of all of its outstanding shares of Series C Preferred Stock for
$43,636 or $10.00 per share. The agreement provides for the repurchase to occur
in two stages. In the first stage, on March 31, 1999, the Company repurchased
3,300,000 shares of the Series C Preferred Stock in exchange for the issuance of
a $33,000 unsecured promissory note. The unsecured promissory note bears
interest at a rate of 12.0% per annum, matures on September 30, 1999, requires
monthly interest-only payments and may be prepaid by the Company at any time
without penalty. Second, the Company is obligated to repurchase the remaining
1,063,636 outstanding shares of its Series C Preferred Stock for an aggregate
purchase price of $10,636 on or before September 30, 1999.
Debt and Equity Offerings
Management intends to continually have access to capital resources necessary to
expand and develop its business and, accordingly, may seek to obtain additional
funds through the potential sale of equity or debt securities in the public or
private capital markets. On December 17, 1998, the Company registered with the
Securities and Exchange Commission $400,000 of equity securities pursuant to a
universal shelf registration statement on Form S-3.
Property Acquisitions
During 1999, the Company will explore acquisitions of manufacturers' outlet
centers in the United States and Western 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 1999. The Company cannot predict if any transaction will be
consummated, nor the terms or form of consideration required.
On December 31, 1998, the Company entered into an agreement to purchase, at its
option, its joint venture partner's 50% ownership interest in Arizona Factory
Shops Partnership for total consideration of approximately $3,600. The option
expires on August 31, 1999. If the Company exercises its option, the Company
will own 100% of Prime Outlets at New River which contains approximately 326,000
square feet and was 88% leased at June 30, 1999.
Debt Transactions
On August 11, 1999, the Company obtained a commitment from certain institutional
investors to provide a $40,000 line of credit (the "Line of Credit"). The Line
of Credit (i) bears interest at a rate of 11.0%, (ii) requires monthly
interest-only payments, and (iii) matures in nine months. Upon repayment of the
loan, the initial investors will also be entitled to receive a cash payment
designed to increase the internal rate of return to such investors by 4.0% per
annum (the "Cash Payment"). The Line of Credit will be secured by a pledge of
the outstanding stock of the subsidiary to be formed by Prime Retail to engage
in the design, development and operation of a virtual outlet center on the
internet. The Company will provide the institutional investors with warrants
representing 5.0% of the outstanding capital stock of this e-commerce
subsidiary, subject to adjustment under certain circumstances. The investors
must elect to forgo all or a portion of the Cash Payment or the warrants in the
event this subsidiary completes an initial public offering prior to the
scheduled maturity date of the Line of Credit. Closing of the Line of Credit is
subject to customary conditions, including the execution of definitive loan
documents.
<PAGE>
On April 27, 1999, the Company closed on a $63,000 debt financing with a
financial institution that provided approximately $27,900 of net proceeds. The
$63,000 note is (i) collateralized by a first
mortgage on Prime Outlets at Niagara Falls USA, (ii) bears interest at a fixed
rate of 7.604%, (iii) requires monthly principal and interest payments of $450
pursuant to a 30-year amortization schedule, and (iv) matures in 10 years. In
connection with the debt refinancing, the Company incurred an extraordinary loss
on early extinguishment of debt of $2,106, net of minority interests of $534,
representing a pre-payment penalty.
As of June 30, 1999, the Company is a guarantor or otherwise obligated with
respect to an aggregate of $35,284 of the indebtedness of Horizon Group
Properties, Inc. and its affiliates ("HGP"). As of June 30, 1999, the components
of such indebtedness included (i) a mortgage loan with an outstanding balance of
$11,793 which bears interest at a rate of prime, matures on August 31, 1999, and
is collateralized by a first mortgage on Phases II and III of property located
in Patchogue, New York; (ii) a mortgage loan with an outstanding balance of
$10,637 which bears interest at a rate of 10.25%, matures in July 2018, and is
collateralized by a first mortgage on Phase I of property located in Patchogue,
New York; (iii) a mortgage loan with an outstanding balance of $2,611 which
bears interest at a rate of LIBOR plus 2.50%, matures in December 2002, and is
collateralized by a first mortgage on a office building in Muskegon, Michigan;
and (iv) a secured loan with an outstanding balance of $243 which bears interest
at a rate of prime, matures in December 2000 and is collateralized by furniture
and fixtures. In addition, the Company is a guarantor of $10,000 of obligations
under HGP's secured credit facility which bears a rate of interest of LIBOR plus
1.90%, matures in July 2001, and is collateralized by seven properties located
throughout the United States. The Company is pursuing an agreement with HGP
pursuant to which it would purchase HGP's and its affiliates' general and
limited partnership interests and a portion of a third party's limited
partnership interest in the Bellport Outlet Center and undeveloped parcels
located in Patchogue, New York. If the agreement is consummated, it is expected
that the aggregate indebtedness of HGP for which the Company remains
contingently liable as a guarantor would be reduced to $12,854.
Property Dispositions
On August 6, 1999, the Company entered into a definitive agreement to sell three
factory outlet centers, including two future expansions, to a new joint venture
between an affiliate of Estein & Associates USA, Ltd. ("Estein") and the Company
(collectively, the "Venture"). The total purchase price for the three centers,
including the two expansions, is $274,000. The purchase price includes an $8,000
payment to the Company for a ten-year covenant-not-to-compete and a $6,000
payment to the Company for a ten-year licensing agreement with the Venture to
continue the use of the "Prime Outlets" brand name.
The Venture expects to close on the three centers and two expansions in
accordance with the following schedule:
- --------------------------------------------------------------------------------
Expected
Closing
Date Center GLA
- --------------------------------------------------------------------------------
11/18/99 Prime Outlets at Birch Run 724,000
2/15/00 Prime Outlets at Williamsburg 274,000
4/15/00 Prime Outlets at Hagerstown 321,000
4/15/00 Prime Outlets at Hagerstown (Phase III) 162,000
9/30/00 Prime Outlets at Williamsburg (Phase II) 70,000
---------
TOTAL 1,551,000
=========
================================================================================
<PAGE>
The Venture expects to purchase the three outlet centers and two expansions
subject to $151,500 of new first mortgage indebtedness, including a $64,500
"wrap-around" first mortgage to be provided by the Company on the Birch Run
center. The balance of the purchase price ($122,500) is expected to be funded
70% by Estein in cash ($85,750) and 30% by the Company ($36,750) in the form of
a credit to its capital account. All of the first mortgage debt is expected to
be for a ten-year term at a fixed interest rate of 7.75%, requiring monthly
payments of principal and interest pursuant to a 25-year amortization schedule.
The Company expects to realize an aggregate of approximately $78,000 of cash
proceeds, net of (i) all closing costs, (ii) the cost of completing the
expansions, and (iii) the Company's approximate $10,000 net investment in the
"wrap-around" first mortgage being provided on the Birch Run center. Prior to
the closing, the Company expects to receive an additional $10,000 of net
proceeds from the refinancing of the existing Williamsburg center.
The Venture has agreed to retain the Company as its sole and exclusive managing
and leasing agent for a property management fee equal to 4.0% of gross rental
receipts, payable monthly, and leasing commissions equal to 4.0% of the base
rent payable under the first term of the lease, payable 50% upon lease execution
and 50% over the term of the lease. The Venture also will pay a monthly asset
management and partnership administration fee to an affiliate of Estein equal to
3.0% of the monthly net operating income from the centers.
<PAGE>
Planned Development
One of the Company's business strategies is to expand its portfolio of outlet
centers by developing new centers and expansions to existing centers. The
Company intends to develop new centers and expand its existing centers only if
the expected returns on such development would reasonably be expected to exceed
the Company's weighted average cost of debt and equity capital. Management
believes that there is demand for continued development of new manufacturers'
outlet centers and expansions of certain existing manufacturers' outlet centers.
The Company opened a 21,000 square foot expansion at Prime Outlets at Lebanon in
March 1999 and an 80,000 square foot expansion at Prime Outlets at San Marcos on
August 2, 1999. The Home Co., the Company's first home furnishings store which
it owns a 47.6% interest through a joint venture occupies 63,000 square feet of
the expansion at San Marcos. In addition, construction continues at Prime
Outlets of Puerto Rico, the first outlet center in Puerto Rico, which will
contain 175,000 square feet of GLA and is scheduled to open at the end of the
first quarter of next year. At June 30, 1999, the remaining budgeted capital
expenditures for these projects aggregated approximately $21,500, while
anticipated capital expenditures related to the completion of expansions of
existing manufacturers' outlet centers opened during 1998 (aggregating 931,000
square feet of GLA) approximated $13,400.
In addition to the projects currently under construction, the Company continues
to pre-lease new manufacturers' outlet centers and expansions to existing
centers and expects to start construction of 325,000 to 450,000 square feet of
GLA over the next six to nine months. However, management may elect to delay
construction of certain projects until such time that it is reasonably confident
that certain minimum returns will be achieved on total development cost. Such
projects are expected to have a total development cost of approximately $41,000
to $57,000. As of June 30, 1999, there were no material commitments with regard
to the construction of these projects.
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 equity or debt securities in the public or private capital markets. There can
be no assurance that the Company will be successful in obtaining the required
amount of equity capital or debt financing for the planned development projects
or that the terms of such capital raising activities will be as favorable as the
Company has experienced in prior periods. 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.
Legal Proceedings
In the ordinary course of business the Company is subject to certain legal
actions. While any litigation contains an element of uncertainty, management
believes the losses, if any, resulting from such matters, including the matter
described below, will not have a material adverse effect on the consolidated
financial statements of the Company.
The Company is defendant in a lawsuit filed on July 27, 1998 in the U.S.
District Court for the Central District of California whereby the plaintiff
alleges that the Company and its related entities overcharged tenants for common
area maintenance expenditures. The outcome of, and the ultimate liability of the
Company, if any, from, this lawsuit cannot currently be predicted. Management
believes that the Company has acted properly and intends to defend this lawsuit
vigorously.
<PAGE>
Economic Conditions
Substantially all of the merchants' leases contain provisions that somewhat
mitigate the impact of inflation. Such provisions include clauses providing for
increases in base rent and clauses enabling the Company to receive percentage
rentals based on merchants' gross sales. Substantially all leases require
merchants to pay their proportionate share of all operating expenses, including
common area maintenance, real estate taxes and promotion, thereby reducing the
Company's exposure to increased costs and operating expenses resulting from
inflation.
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
The year 2000 ("Y2K") issue refers generally to computer applications using only
the last two digits to refer to a year rather than all four digits. As a result,
these applications could fail or create erroneous results if they recognize "00"
as the year 1900 rather than the year 2000. The Company has taken Y2K
initiatives in the following three general areas:
Information Technology
The Company has focused its efforts on the high-risk areas of the corporate
office computer hardware, operating systems and software applications. The
principal risks to the Company relating to its information technology are
failure to correctly bill tenants and pay invoices. However, the Company's
assessment and testing of existing equipment revealed that its hardware, network
operating systems and software applications are Y2K compliant.
Non-information Technology
Non-information technology consists mainly of facilities management systems such
as telephone, utility and security systems for the corporate office and the
outlet centers. Based on the Company's inquiry of the building owner, the
corporate office's non-information technology is Y2K compliant. The Company is
in the process of identifying date sensitive systems and equipment at its outlet
centers. To date, the Company has not identified any critical non-compliant
systems. Assessment and testing of non-information technology at the Company's
outlet centers is expected to be completed during the third quarter of 1999.
Third Parties
The Company has third-party relationships with tenants and suppliers and
contractors. Many of these third parties are publicly-traded corporations and
subject to disclosure requirements. The Company has begun assessment of major
third parties' Y2K readiness including tenants, key suppliers of outsourced
services including stock transfer, debt servicing, banking collection and
disbursement, payroll and benefits, while simultaneously responding to their
inquiries regarding the Company's readiness. The principal risks to the Company
in its relationships with third parties are the failure of third-party systems
used to conduct business such as (i) tenants being unable to stock stores with
merchandise, use cash registers, and pay invoices; (ii) banks being unable to
process receipts and disbursements; (iii) vendors being unable to supply needed
materials and services to the centers; and (iv) processing of outsourced
employee payroll. Based on Y2K compliance work done to date, the Company has no
reason to believe that key tenants, banks and suppliers will not be Y2K
compliant in all material respects or cannot be replaced within an acceptable
timeframe. Additionally, the
<PAGE>
Company has obtained or is in the process of obtaining compliance certification
from suppliers of key services.
Contingency Plans
Contingency plans generally involve the development and testing of manual
procedures or the use of alternate systems. Viable contingency plans are
difficult to develop for potential third party Y2K failures. Based on the
Company's current assessment of Y2K readiness relating to information
technology, non-information technology, and third parties, the Company has not
implemented a Y2K contingency plan to date. However, the Company will continue
to assess the need for such a plan.
Currently, the Company believes its cost to successfully mitigate the Y2K issue,
estimated at less than $250, has not been and is not anticipated to be material
to the Company's financial position or results from operations. However, the
Company's description of its Y2K compliance issue is based upon information
obtained by management through evaluations of internal business systems and from
inquiries of key tenants and major vendors concerning their compliance efforts.
If key tenants or major vendors with whom the Company does business fail to
adequately address their Y2K issues, the Company's financial position or results
from operations could be materially adversely affected.
Funds from Operations
Management believes that to facilitate a clear understanding of the Company's
operating results, funds from operations ("FFO") should be considered in
conjunction with net income (loss) presented in accordance with generally
accepted accounting principles ("GAAP"). In March 1995, the National Association
of Real Estate Investment Trusts ("NAREIT") established guidelines clarifying
the definition of FFO. FFO is defined as net income (loss) (determined in
accordance with GAAP) excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization after adjustments for
unconsolidated partnerships and joint ventures.
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. The Company's FFO is not comparable to FFO reported
by other REITs that do not define the term using the current NAREIT definition
or that interpret the current NAREIT definition differently than does the
Company. Therefore, the Company cautions that the calculation of FFO may vary
from entity to entity and as such the presentation of FFO by the Company may not
be comparable to other similarly titled measures of other reporting companies.
The Company believes that in order to facilitate a clear understanding of its
operating results, FFO should be examined in conjunction with net income
determined in accordance with GAAP. FFO does not represent cash generated from
operating activities in accordance with GAAP and should not be considered as an
alternative to net income as an indication of the Company's performance or to
cash flows as a measure of liquidity or ability to make distributions.
TABLE 6 provides a reconciliation of income before allocations to minority
interests and preferred shareholders to FFO for the three and six months ended
June 30, 1999 and 1998. FFO increased $9,039, or 52.4%, to $26,292 for the three
months ended June 30, 1999 from $17,253 for the three months ended June 30,
1998. FFO increased $21,260, or 65.0%, to $53,968 for the six months ended June
30, 1999 from $32,708 for the six months ended June 30, 1998. This increase was
primarily due to the Portfolio Expansion and the Horizon Merger.
<TABLE>
TABLE 6 - Funds from Operations
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Three months ended Six months ended
June 30 June 30
-------------------------------- --------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income (loss) before extraordinary loss and
allocation to minority interests $ 7,677 $ (8,302) $16,975 $ (851)
FFO adjustments:
Loss on sale of real estate - 15,461 - 15,461
Real estate depreciation and amortization 18,441 9,792 36,564 17,493
Unconsolidated joint venture adjustments 174 302 429 605
-------- -------- ------- --------
FFO before allocation to minority interests $ 26,292 $ 17,253 $53,968 $32,708
======== ======== ======= ========
====================================================================================================================================
</TABLE>
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk Sensitivity
Interest Rate Risk
In the ordinary course of business, the Company is exposed to the impact of
interest rate changes. The Company employs established policies and procedures
to manage its exposure to interest rate changes. The Company uses a mix of fixed
and variable rate debt to (i) limit the impact of interest rate changes on its
results from operations and cash flows and (ii) to lower its overall borrowing
costs. The following table provides a summary of principal cash flows and
related interest rates by fiscal year of maturity. Variable interest rates are
based on the weighted average rates of the portfolio at June 30, 1999.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year of Maturity
- ------------------------------------------------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004 Thereafter Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate:
- ----------
Principal..................... $41,253 $43,177 $ 50,770 $89,008 $348,761 $17,049 $423,657 $1,013,675
Average interest rate......... 11.04% 7.08% 7.40% 6.98% 7.76% 7.75% 7.10% 7.50%
Variable rate:
- -------------
Principal...................... $61,461 $ 1,612 $152,000 $ 427 $ 778 $30,823 $ 28,250 $ 275,351
Average interest rate.......... 6.97% 6.91% 6.42% 6.44% 6.44% 6.44% 3.42% 6.24%
====================================================================================================================================
</TABLE>
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of business the Company is subject to certain legal
actions. While any litigation contains an element of uncertainty, management
believes the losses, if any, resulting from such matters, including the matter
described below, will not have a material adverse effect on the consolidated
financial statements of the Company.
The Company is defendant in a lawsuit filed on July 27, 1998 in the U.S.
District Court for the Central District of California whereby the plaintiff
alleges that the Company and its related entities overcharged tenants for common
area maintenance expenditures. The outcome of, and the ultimate liability of the
Company, if any, from, this lawsuit cannot currently be predicted. Management
believes that the Company has acted properly and intends to defend this lawsuit
vigorously.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Shareholders Meeting held on June 3,
1999, certain matters were submitted to the vote of the
Company's security holders. The following summarizes these
matters and the results of the voting.
(a) The nominees for director proposed by the Company were elected. The votes
cast for these nominees were as set forth below:
For Withheld
-------------------- --------------------
Abraham Rosenthal 36,439,397 253,547
Robert D. Perlmutter 36,439,091 253,853
James R. Thompson 36,439,197 253,747
Marvin S. Traub 36,438,878 254,066
(b) The proposal to ratify the selection of the firm of Ernst & Young, LLP as
the Company's independent auditors for the year ending December 31, 1999
was approved. The votes cast with respect to that proposal were as set
forth below:
For Against Abstain
---------------------- --------------------- -----------------------
36,509,612 84,129 99,203
<PAGE>
(c) The proposal to ratify the adoption of the Prime Retail, Inc. Nonemployee
Director Stock Plan was approved. The votes cast with respect to such
proposal were as set forth below:
For Against Abstain
---------------------- ---------------------- ---------------------
34,153,935 2,302,895 236,112
Item 5. Other Information
None
Item 6. Exhibits or Reports on Form 8-K
(a) The following exhibits are included in this Form 10-Q:
Exhibit 12.1 - Ratio of Earnings to Fixed Charges
and Preferred Stock Distributions and Dividends
Exhibit 27.1 - Financial Data Schedule
(EDGAR filing only)
(b) Reports on Form 8-K:
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRIME RETAIL, INC.
Registrant
Date: August 13, 1999 /s/ Abraham Rosenthal
--------------- ---------------------
Abraham Rosenthal
Chief Executive Officer
Date: August 13, 1999 /s/ Robert P. Mulreaney
--------------- -----------------------
Robert P. Mulreaney
Executive Vice President,
Chief Financial Officer
and Treasurer
PRIME RETAIL, INC.
EXHIBIT 12: COMPUTATION OF RATIO OF EARNINGS
TO COMBINED FIXED CHARGES AND PREFERRED STOCK DISTRIBUTIONS AND DIVIDENDS
(Amounts in thousands, except for ratio information)
<TABLE>
<CAPTION>
Six Months Ended June 30
-------------------------------------------
1999 1998
-------------------- --------------------
<S> <C> <C>
Income (loss) before minority interests $ 16,975 $ (851)
Loss on sale of real estate - 15,461
Interest incurred 45,038 21,621
Amortization of capitalized interest 244 208
Amortization of debt issuance costs 1,390 648
Amortization of interest rate protection contracts 60 681
Less interest earned on interest rate protection contracts - (23)
Less capitalized interest (2,219) (2,778)
-------- --------
Earnings 61,488 34,967
-------- --------
Interest incurred 45,038 21,621
Amortization of debt issuance costs 1,390 648
Amortization of interest rate protection contracts 60 681
Preferred stock distributions and dividends 12,938 10,906
--------- --------
Combined Fixed Charges and
Preferred Stock Distributions and Dividends $ 59,426 $ 33,856
--------- --------
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Distributions and Dividends 1.03 x 1.03 x
========= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> Jun-30-1999
<EXCHANGE-RATE> 1
<CASH> 1,606
<SECURITIES> 0
<RECEIVABLES> 24,475
<ALLOWANCES> 6,389
<INVENTORY> 0
<CURRENT-ASSETS> 88,642
<PP&E> 2,054,166
<DEPRECIATION> 161,011
<TOTAL-ASSETS> 1,981,797
<CURRENT-LIABILITIES> 90,544
<BONDS> 1,289,026
0
101
<COMMON> 433
<OTHER-SE> 581,488
<TOTAL-LIABILITY-AND-EQUITY> 1,981,797
<SALES> 0
<TOTAL-REVENUES> 154,887
<CGS> 0
<TOTAL-COSTS> 137,912
<OTHER-EXPENSES> 4,151
<LOSS-PROVISION> 1,249
<INTEREST-EXPENSE> 43,725
<INCOME-PRETAX> 16,975
<INCOME-TAX> 0
<INCOME-CONTINUING> 16,975
<DISCONTINUED> 0
<EXTRAORDINARY> 2,106
<CHANGES> 0
<NET-INCOME> 14,335
<EPS-BASIC> 0.37
<EPS-DILUTED> 0.04
</TABLE>
