United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarterly Period Ended September 30, 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
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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 October 31, 1999, the issuer had outstanding 43,368,104 shares of Common
Stock, $.01 par value per share.
<PAGE>
Prime Retail, Inc.
Form 10-Q
INDEX
PART I: FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 1999 and
December 31, 1998 .................................................... 1
Consolidated Statements of Operations for the three and nine months
ended September 30, 1999 and 1998....................................... 2
Consolidated Statements of Cash Flows for the nine
months ended September 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>
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investment in rental property:
Land $ 212,680 $ 206,386
Buildings and improvements 1,803,137 1,753,641
Property under development 58,348 45,068
Furniture and equipment 15,859 10,627
------------ ------------
2,090,024 2,015,722
Accumulated depreciation (180,106) (127,747)
------------ ------------
1,909,918 1,887,975
Cash and cash equivalents 3,384 5,765
Restricted cash 30,914 34,969
Accounts receivable, net 21,998 21,233
Deferred charges, net 16,186 12,518
Investment in partnerships 9,416 8,386
Other assets 10,011 5,618
------------ -----------
Total assets $ 2,001,827 $ 1,976,464
============ ===========
Liabilities and Shareholders' Equity
Bonds payable $ 32,900 $ 32,900
Notes payable 1,290,594 1,184,607
Accrued interest 7,753 7,878
Real estate taxes payable 23,685 11,229
Construction costs payable 5,649 3,754
Accounts payable and other liabilities 66,818 69,879
------------ ------------
Total liabilities 1,427,399 1,310,247
Minority interests 4,234 22,483
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, 43,326,537 and 42,736,742
shares issued and outstanding, respectively 434 427
Additional paid-in capital 708,499 759,105
Distributions in excess of net income (138,840) (115,943)
------------ ------------
Total shareholders' equity 570,194 643,734
------------ ------------
Total liabilities and shareholders' equity $ 2,001,827 $ 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 Nine months
ended September 30 ended September 30
----------------------------- -------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Base rents $ 49,178 $ 47,516 $146,836 $ 98,646
Percentage rents 1,956 1,960 5,996 3,999
Tenant reimbursements 22,144 21,638 68,441 46,285
Interest and other 4,109 2,403 11,001 7,594
-------- -------- -------- --------
Total revenues 77,387 73,517 232,274 156,524
Expenses
Property operating 17,777 17,140 53,918 36,422
Real estate taxes 5,753 5,380 17,046 11,600
Depreciation and amortization 19,452 16,509 56,467 34,267
Corporate general and administrative 2,189 2,260 7,776 5,708
Interest 24,289 20,086 68,014 39,399
Other charges 1,475 1,570 5,626 2,376
-------- -------- -------- --------
Total expenses 70,935 62,945 208,847 131,342
-------- -------- -------- --------
Income before loss on sale of real estate,
minority interests, and extraordinary loss 6,452 10,572 23,427 25,182
Loss on sale of real estate - - - (15,461)
-------- -------- -------- --------
Income before minority interests and
extraordinary loss 6,452 10,572 23,427 9,721
(Income) loss allocated to minority interests 78 (214) (456) (2,456)
-------- -------- -------- --------
Income before extraordinary loss 6,530 10,358 22,971 7,265
Extraordinary loss on early extinguishment of debt,
net of minority interests of $534 - - (2,106) -
-------- -------- -------- --------
Net income 6,530 10,358 20,865 7,265
Income allocated to preferred shareholders (6,048) (6,741) (4,294) (17,648)
-------- -------- -------- --------
Net income (loss) applicable to common shares $ 482 $ 3,617 $ 16,571 $(10,383)
======== ======== ======== ========
Earnings per common share - basic:
Income (loss) before extraordinary loss $ 0.01 $ 0.09 $ 0.43 $ (0.31)
Extraordinary loss - - (0.05) -
-------- -------- -------- --------
Net income (loss) $ 0.01 $ 0.09 $ 0.38 $ (0.31)
======== ======== ======== ========
Earnings per common share - diluted:
Income (loss) before extraordinary loss $ 0.01 $ 0.09 $ 0.10 $ (0.31)
Extraordinary loss - - (0.04) -
-------- -------- -------- --------
Net income (loss) $ 0.01 $ 0.09 $ 0.06 $ (0.31)
======== ======== ======== ========
Weighted average common shares outstanding:
Basic 43,286 42,314 43,142 33,211
======== ======== ======== ========
Diluted 43,286 42,314 55,557 33,211
======== ======== ======== ========
Distributions declared per common share $ 0.295 $ 0.295 $ 0.885 $ 1.385
======== ======== ======== =========
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
Prime Retail, Inc.
Consolidated Statements of Cash Flows
(in thousands)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Nine months ended September 30, 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $20,865 $ 7,265
Adjustments to reconcile net income to
net cash provided by operating activities:
(Loss) income allocated to minority interests (78) 2,456
Loss on sale of real estate - 15,461
Depreciation 55,866 33,413
Amortization of deferred financing costs and
interest rate protection contracts 2,427 2,199
Amortization of leasing commissions 601 854
Provision for uncollectible accounts receivable 1,396 788
Changes in operating assets and liabilities:
Increase in accounts receivable (5,125) (1,656)
Increase in other assets (3,385) (1,147)
Increase (decrease) in accrued interest (24) 2,553
Decrease in accounts payable and other liabilities 4,594 (9,668)
------- --------
Net cash provided by operating activities 77,137 52,518
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 (26,292) (42,916)
Increase in property under development (31,369) (70,821)
------- --------
Net Cash used in investing activities (57,931) (122,846)
Financing Activities
Proceeds from notes payable 190,684 421,970
Principal repayments on notes payable (95,709) (266,722)
Deferred financing costs (4,696) (3,247)
Series C preferred stock redemption (45,054) -
Distributions and dividends paid (57,100) (60,143)
Distributions to minority interests (9,712) (14,145)
------- --------
Net cash (used in) provided by financing activities (21,587) 77,713
-------- --------
(Decrease) increase in cash and cash equivalents (2,381) 7,385
Cash and cash equivalents at beginning of period 5,765 6,373
------- --------
Cash and cash equivalents at end of period $ 3,384 $ 13,758
======= ========
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Prime Retail, Inc.
Consolidated Statements of Cash Flows (continued)
(in thousands)
Supplemental Disclosure of Noncash Investing and Financing Activities:
The following assets and liabilities were acquired and sold in connection with
the consummation of the Merger Transactions on June 15, 1998:
Acquisition of Horizon, net of spin-off of HGP:
Fair value of assets acquired $1,014,973
Cash paid, net of cash and cash equivalents acquired (35,559)
Common shares issued (214,282)
Common units issued (56,023)
Series B convertible preferred shares issued (118,735)
----------
Fair value of liabilities assumed $ 590,374
==========
Disposition of Prime Transferred Properties:
Book value of assets disposed $ 42,218
Cash received (26,015)
Loss on sale (15,461)
----------
Liabilities disposed $ 742
==========
================================================================================
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 inconformity 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 nine months
ended September 30, 1999, (i) a redemption discount and dividends aggregating
$13,338 related to the Company's repurchase of its Series C Preferred Stock and
(ii) income of $422 allocated to Common Unitholders were excluded from the
numerator and incremental shares of 12,415 were included in the denominator of
the computation of diluted EPS. For the three months ended September 30, 1999
and for the three and nine months ended September 30, 1998, diluted EPS is
equivalent to basic EPS as the inclusion of the effect of assumed exercises and
conversions was anti-dilutive.
<PAGE>
<TABLE>
The following table sets forth the computation of basic and diluted earnings per share:
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Three months Six months
ended September 30 ended June 30
----------------------------- -----------------------------
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Income before extraordinary loss and
minority interests $ 6,452 $ 10,572 $23,427 $ 9,721
(Income) loss allocated to minority interests 78 (214) (456) (2,456)
------- -------- ------- --------
Net income before extraordinary loss 6,530 10,358 22,971 7,265
Income loss allocated to preferred shareholders (6,048) (6,741) (4,294) (17,648)
------- -------- ------- --------
Numerator for basic earnings per share -
income (loss) available to common shareholders
before extraordinary loss 482 3,617 18,677 (10,383)
Effect of dilutive securities:
Income allocated to common unitholders - - 422 -
Series C preferred stock redemption discount - - (13,338) -
------- -------- ------- --------
Numerator for diluted earnings per share -
income (loss) available to common shareholders
before extraordinary loss $ 482 $ 3,617 $ 5,761 $ (10,383)
======= ======== ======== =========
Denominator:
Denominator for basic earnings per share -
weighted average common shares outstanding 43,286 42,314 43,069 33,211
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 43,286 42,314 55,720 33,211
======= ======= ======= ========
Basic earnings per common share before
extraordinary loss $ 0.01 $ 0.09 $ 0.42 $ (0.31)
====== ======= ======= ========
Diluted earnings per common share before
extraordinary loss $ 0.01 $ 0.09 $ 0.08 $ (0.31)
====== ======= ======= ========
====================================================================================================================================
</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 $3,369
incurred during the nine months ended September 30, 1998, that were otherwise
allocable to minority interests were allocated to common shareholders. During
the nine months ended September 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 $4,261 and the remaining balance
at September 30, 1999 was $10,368.
Note 4 - Notes Payable
On November 15, 1999, the Company closed on a $20,000 subordinated loan (the
"Subordinated Loan") from an institutional lender. The Subordinated Loan (i)
bears interest at a fixed-rate of 15.0%, (ii) requires monthly interest-only
payments, (iii) matures on December 31, 1999, and (iv) is secured by a pledge of
a security interest in certain of the Company's ownership interests in, and the
available cash flow from five outlet centers, including Prime Outlets of Puerto
Rico, which is currently under construction. This collateral is also pledged to
secure borrowings under the Line of Credit (as defined below).
On November 12, 1999, the Company closed on $55,000 term loan (the "$55,000 Term
Loan") from a financial institution. The $55,000 Term Loan (i) bears interest at
30-day LIBOR plus 6.0%, (ii) requires monthly principal and interest payments,
and (iii) matures in two years. The Term Loan was issued by Prime Retail Capital
I, L.L.C. ("PRC"), a newly-formed wholly-owned subsidiary of Prime Retail, L.P.,
and is secured by the excess cash flow from 15 manufacturer' outlet centers
after the payment of senior debt service and reserves under an existing $350,645
first mortgage loan. The Term Loan also is secured by a pledge of PRC's 49.9%
limited partnership interest in partnerships that own twelve of those outlet
centers and Prime Retail, L.P.'s 100% equity interest in PRC. The Term Loan is
unconditionally guaranteed by Prime Retail, L.P. and Prime Retail, Inc.
The Company used the net cash proceeds from the Term Loan to repay $40,944 of
short-term indebtedness and to repay a portion of the borrowings under the Line
of Credit.
During October 1999, the Company refinanced its $28,250 of variable-rate,
tax-exempt revenue bonds by issuing $28,250 of fixed rate tax-exempt revenue
bonds (the "Fixed Rate Bonds"). The Fixed Rate Bonds bear interest ranging from
6.875% to 7.0%, require semi-annual interest payments and mature from December
15, 2012 through December 1, 2014. The Fixed Rate Bonds are redeemable by the
Company commencing in December 2006 at 102% of the outstanding principal
balance. The redemption price decreases incrementally each year thereafter
through December 2008, at which date the redemption price is fixed at 100% of
the outstanding principal balance.
On September 29, 1999, the Company received $40,000 of proceeds from a line of
credit facility (the "Line of Credit") with a group of institutional lenders.
These proceeds were used to repurchase the Company's Series C Preferred Stock.
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. The Line of Credit initially
was secured by a pledge of the Company's interest in one of its subsidiaries
that will be formed to engage in the design, development and operation of a
virtual outlet center on the internet. Subsequently this facility was amended
to, among other things, permit the Subordinated Loan and provide for the pledge
of assets securing such loan as additional collateral under the Line of Credit.
Borrowings under the Line of Credit rank senior to the Subordinated Loan and the
Company is prohibited from making any payment of principal in respect of the
Subordinated Loan so long as any obligations remain outstanding under the Line
of Credit. Upon repayment of the Line of Credit in full, the lenders will be
entitled to receive a cash payment that increases their internal rate of return
with respect to amounts advanced under such facility by 4.0% per annum (the
"Cash Payment"). Lenders under the Line of Credit also received warrants to
purchase a 5% interest in the Company's e-commerce subsidiary. In the event this
subsidiary completes an initial public offering prior to September 10, 2000,
such lenders must elect to (i) surrender these warrants, (ii) forgo the Cash
Payment or (iii) surrender a portion of the warrants and forgo a portion of the
Cash Payment based on the number of warrants so surrendered.
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. At September 30, 1999, the
Corporate Line had an outstanding principal balance of $22,175.
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 September 30, 1999, the Company is a guarantor or otherwise obligated with
respect to an aggregate of $12,774 of the indebtedness of Horizon Group
Properties, Inc. and its affiliates ("HGP") including a $10,000 obligation 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.
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 provided 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 12.0% fixed rate $33,000 unsecured promissory note which was repaid on
September 29, 1999. In the second stage, the Company repurchased the remaining
1,063,636 outstanding shares of its Series C Preferred Stock for an aggregate
purchase price of $10,636 on September 29, 1999.
During the nine months ended September 30, 1999, a redemption discount of
$13,338 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 and its affiliates are defendants in a lawsuit filed on August 10,
1999 in the Circuit Court for Baltimore City and removed to U.S. District Court
for the District of Maryland on August 20, 1999. The lawsuit alleges that the
Company and its related entities overcharged tenants for common area maintenance
charges and promotional fund charges. 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 - Proposed Sale of Majority Interests in Three Outlet Centers
On August 6, 1999, the Company entered into an agreement to sell three factory
outlet centers, including two future expansions expected to be completed in
2000, to a new joint venture (the "Prime/Estein Venture") that will be 70% owned
by an affiliate of Estein & Associates USA, Ltd., a German real estate
investment company ("Estein"), and 30% owned by the Company. The total purchase
price for the three centers, including the two proposed expansions, is $274,000.
The Prime/Estein 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 Prime
Outlets at Birch Run. 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 in the form
of a credit to its capital account ($36,750). In accordance with the terms of
the joint venture agreement, the first mortgage debt is required 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 receive approximately $78,000 of cash proceeds, net of
(i) all closing costs, (ii) the cost of completing the proposed expansions, and
(iii) the Company's approximate $10,000 net investment in the "wrap-around"
first mortgage being provided on Prime Outlets at Birch Run. An additional
$10,000 of net proceeds is expected as a result of the refinancing of the
existing Williamsburg first mortgage loan.
Consummation of this transaction remains subject to various conditions,
including receipt of requisite financing. There can be no assurance that the
Prime/Estein Venture will close this transaction or that, if completed, the
terms of this transaction will not differ materially from those described above.
<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.
<PAGE>
Portfolio Growth
The Company has grown by developing and acquiring outlet centers and expanding
certain of its existing outlet centers. As summarized in TABLE 1, the Company's
outlet portfolio consisted of 51 outlet centers totaling 14,699,000 square feet
of gross leasable area ("GLA") at September 30, 1999, compared to 50 operating
outlet centers totaling 14,029,000 square feet of GLA at September 30, 1998.
During the nine months ended September 30, 1999, the Company (i) opened two
expansions to existing outlet centers aggregating 85,000 square feet of GLA (of
which 21,000 and 64,000 square feet opened in March and August, respectively)
and (ii) acquired from Horizon Group Properties, Inc. ("HGP") ownership
interests in the Bellport Outlet Center which consists of 292,000 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 outlet centers
into its existing portfolio adding 6,626,000 square feet of GLA in the aggregate
and sold two outlet centers to HGP totaling 426,000 square feet of GLA.
Additionally, during 1998, the Company opened two new outlet centers and added
nine expansions to existing outlet centers totaling 931,000 square feet of GLA
in the aggregate (of which seven expansions to existing outlet centers totaling
402,000 square feet of GLA opened after September 30, 1998). The increase in the
Company's total GLA since September 30, 1998 is referred to as the "Portfolio
Expansion". The significant increase in the number of the Company's operating
properties and total GLA since January 1, 1998 are collectively referred to as
the "Portfolio Expansion and the Horizon Merger".
<PAGE>
<TABLE>
Table 1 - Portfolio of Properties September 30, 1999
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Grand GLA Percentage
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 92
II November 1993 51,000 100
III October 1994 60,000 100
------- ---
229,000 96
Prime Outlets at Birch Run (2)-- Birch Run, Michigan................... I-XVI Various 591,000 96
XVII-XVIII 1997 133,000 97
------- ---
724,000 97
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 130,000 100
III July 1991 36,000 86
IV July 1994 42,000 100
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 86
IV 1995 98,000 100
------- ---
274,000 97
Prime Outlets at Kenosha (2)-- Kenosha, Wisconsin...................... I September 1988 89,000 96
II July 1989 65,000 100
III May 1990 115,000 93
------- ---
269,000 96
Prime Outlets at Silverthorne (2)-- Silverthorne, Colorado............. I November 1988 95,000 90
II November 1990 75,000 92
III November 1993 88,000 83
------- ---
258,000 88
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 89
II October 1989 36,000 100
III April 1993 49,000 97
------- ---
174,000 93
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>
Table 1 - Portfolio of Properties September 30, 1999
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Grand GLA Percentage
Phase Opening Date (Sq. Ft.) Leased(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Outlets at Hillsboro (2)-- Hillsboro, Texas...................... I October 1989 95,000 90%
II January 1992 101,000 92
III May 1995 163,000 95
------- ---
359,000 93
Prime Outlets at Oshkosh (2)-- Oshkosh, Wisconsin...................... I November 1989 215,000 95
II July 1991 45,000 93
------- ---
260,000 95
Prime Outlets at Warehouse Row (3)-- Chattanooga, Tennessee............ I November 1989 95,000 89
Prime Outlets at Gilroy (2)-- Gilroy, California....................... I January 1990 94,000 100
II August 1991 109,000 100
III October 1992 137,000 94
IV July 1994 170,000 97
V November 1995 69,000 100
------- ---
579,000 98
Prime Outlets at Perryville (2)-- Perryville, Maryland................. I June 1990 148,000 91
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 91
III August 1993 117,000 78
IIIB November 1994 20,000 91
IIIC November 1995 35,000 100
IIID May 1998 18,000 100
V August 1999 64,000 99
------- ---
501,000 93
Prime Outlets at Anderson-- Anderson, California....................... I August 1990 165,000 94
Prime Outlets at Post Falls-- Post Falls, Idaho ....................... I July 1991 111,000 82
II July 1992 68,000 89
------- ---
179,000 85
Prime Outlets at Ellenton-- Ellenton, Florida.......................... I October 1991 187,000 98
II August 1993 123,000 100
III October 1996 30,000 100
IV November 1998 141,000 97
------- ---
481,000 98
Prime Outlets at Morrisville-- Raleigh - Durham, North Carolina........ I October 1991 181,000 95
II July 1996 6,000 100
------- ---
187,000 95
Prime Outlets at Naples-- Naples/Marco Island, Florida................. I December 1991 94,000 88
II December 1992 32,000 100
III March 1998 20,000 98
------- ---
146,000 92
Prime Outlets at Conroe (2)-- Conroe, Texas............................ I January 1992 93,000 94
II June 1994 163,000 90
III October 1994 26,000 79
------- ---
282,000 90
Prime Outlets at Bellport (4) -- Bellport, New York.................... I May 1992 95,000 88
II November 1996 126,000 91
III October 1997 71,000 60
------- ---
292,000 83
</TABLE>
<PAGE>
<TABLE>
Table 1 - Portfolio of Properties September 30, 1999
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Grand GLA Percentage
Phase Opening Date (Sq. Ft.) Leased(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Outlets at Niagara Falls USA-- Niagara Falls, New York........... I July 1992 300,000 100%
II August 1995 234,000 89
------- ---
534,000 95
Prime Outlets at Woodbury (2)-- Woodbury, Minnesota.................... I July 1992 129,000 93
II November 1993 100,000 88
III August 1994 21,000 100
------- ---
250,000 91
Prime Outlets at Calhoun (2)-- Calhoun, Georgia........................ I October 1992 123,000 97
II October 1995 131,000 94
------- ---
254,000 95
Prime Outlets at Castle Rock-- Castle Rock, Colorado................... I November 1992 181,000 96
II August 1993 94,000 98
III November 1993 95,000 100
IV August 1997 110,000 100
------- ---
480,000 98
Prime Outlets at Bend-- Bend, Oregon................................... I December 1992 97,000 98
II September 1998 35,000 99
------- ---
132,000 98
Prime Outlets at Jeffersonville II (2)-- Jeffersonville, Ohio.......... I March 1993 126,000 73
II August 1993 123,000 60
III October 1994 65,000 74
------- ---
314,000 68
Prime Outlets at Jeffersonville I-- Jeffersonville, Ohio............... I July 1993 186,000 89
II November 1993 100,000 100
IIB November 1994 13,000 64
IIIA August 1996 35,000 97
IIIB March 1997 73,000 100
------- ---
407,000 94
Prime Outlets at Gainesville-- Gainesville, Texas...................... I August 1993 210,000 90
II November 1994 106,000 90
------- ---
316,000 90
Prime Outlets at Loveland-- Loveland, Colorado......................... I May 1994 139,000 97
II November 1994 50,000 100
III May 1995 114,000 93
IV May 1996 25,000 100
------- ---
328,000 96
Prime Outlets at Oxnard (5)-- 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 99
IV November 1996 118,000 99
------- ---
533,000 100
Prime Outlets at Huntley-- Huntley, Illinois........................... I August 1994 192,000 96
II November 1995 90,000 89
------- ---
282,000 94
Prime Outlets at Florida City-- Florida City, Florida.................. I September 1994 208,000 86
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 91
</TABLE>
<PAGE>
<TABLE>
Table 1 - Portfolio of Properties September 30, 1999
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Grand GLA Percentage
Phase Opening Date (Sq. Ft.) Leased(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Outlets at Vero Beach (2)-- Vero Beach, Florida.................. I November 1994 210,000 98%
II August 1995 116,000 98
------- ---
326,000 98
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 94
------- ---
391,000 99
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 (6)-- 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 (5)-- Phoenix, Arizona...................... I September 1995 217,000 96
II September 1996 109,000 86
------- ---
326,000 92
Prime Outlets at Gulfport (6)-- Gulfport, Mississippi.................. I November 1995 228,000 95
IIA November 1996 40,000 72
IIB November 1997 38,000 84
------- ---
306,000 91
Prime Outlets at Lodi-- Burbank, Ohio.................................. I November 1996 205,000 94
IIA May 1998 33,000 92
IIB November 1998 75,000 83
------- ---
313,000 91
Prime Outlets at Gaffney-- Gaffney, South Carolina..................... I November 1996 235,000 95
II July 1998 70,000 92
------- ---
305,000 94
Prime Outlets at Lee (2)-- Lee, Massachusetts.......................... I June 1997 224,000 100
Prime Outlets at Lebanon-- Lebanon, Tennessee......................... I April 1998 208,000 97
IIA March 1999 21,000 79
------- ---
229,000 95
Prime Outlets at Hagerstown-- Hagerstown, Maryland..................... I August 1998 218,000 100
II November 1998 103,000 100
------- ---
321,000 100
---------- ---
Total Outlet Centers (7)............................................... 14,699,000 94%
========== ===
====================================================================================================================================
</TABLE>
Notes:
(1) Percentage reflects fully executed leases as of September 30, 1999 as a
percent of square feet of GLA.
(2) The Company acquired this 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 September 30, 1999.
(4) On September 1, 1999, the Company acquired 50% of Phase I and 51% of Phases
II and III of this outlet center which it owns in joint venture
partnerships with unrelated third parties.
(5) The Company owns 50% of this outlet center in a joint venture partnership
with an unrelated third party.
(6) The Company operates this outlet center pursuant to a long-term ground
lease under which the Company receives the economic benefit of a 100%
ownership interest.
(7) 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 September 30, 1999.
<PAGE>
Results of Operations
Comparison of the three months ended September 30, 1999 to the three months
ended September 30, 1998
Summary
The Company reported net income of $6,530 and $10,358 for the three months ended
September 30, 1999 and 1998, respectively. For the three months ended September
30, 1999, the net income applicable to common shareholders was $482, or $0.01
per common share on a basic and diluted basis. For the three months ended
September 30, 1998, the net income applicable to common shareholders was $3,617,
or $0.09 per common share on a basic and diluted basis.
Revenues
Total revenues were $77,387 for the three months ended September 30, 1999
compared to $73,517 for the three months ended September 30, 1998, an increase
of $3,870, or 5.3%. Base rents increased $1,662, or 3.5%, in 1999 compared
to 1998. Straight-line rents (included in base rents) were $335 and $140 for the
three months ended September 30, 1999 and 1998, respectively. These increases
are primarily due to the Portfolio Expansion.
Tenant reimbursements, which represent the contractual recovery from tenants of
certain operating expenses, increased by $506, or 2.3%, during the three months
ended September 30, 1999 over the same period in 1998. This increase was
primarily due to the Portfolio Expansion.
Interest and other income increased by $1,706, or 71.0%, to $4,109 during the
three months ended September 30, 1999 as compared to $2,403 for the three months
ended September 30, 1998. This increase reflects higher (i) lease buyout income
of $798, (ii) temporary tenant income of $489, (iii) municipal assistance income
of $216, and (iv) other miscellaneous income of $203.
Expenses
Property operating expenses increased by $637, or 3.7%, to $17,777 for the three
months ended September 30, 1999 compared to $17,140 for the same period in 1998.
Real estate taxes increased by $373, or 6.9%, to $5,753 for the three months
ended September 30, 1999 from $5,380 in the same period for 1998. 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 $2,943, or 17.8%, to $19,452 for the three months ended September
30, 1999 compared to $16,509 for 1998. This increase primarily results from the
depreciation and amortization of assets associated with the Portfolio Expansion.
<PAGE>
TABLE 2 -- Components of Depreciation and Amortization Expense
The components of depreciation and amortization expense are summarized as
follows:
- --------------------------------------------------------------------------------
Three months ended September 30, 1999 1998
- --------------------------------------------------------------------------------
Building and improvements $10,244 $ 9,440
Land improvements 1,442 899
Tenant improvements 6,841 5,611
Furniture and fixtures 729 343
Leasing commissions 196 216
------- -------
Total $19,452 $16,509
======= =======
================================================================================
TABLE 3 -- Components of Interest Expense
The components of interest expense are summarized as follows:
- --------------------------------------------------------------------------------
Three months ended September 30, 1999 1998
- --------------------------------------------------------------------------------
Interest incurred $24,480 $20,950
Interest capitalized (1,168) (1,734)
Amortization of deferred financing costs 974 545
Amortization of interest rate protection
contracts 3 325
------- -------
Total $24,289 $20,086
======= =======
================================================================================
As shown in TABLE 3, interest expense for the three months ended September 30,
1999 increased by $4,203, or 20.9%, to $24,289 compared to $20,086 for the same
period in 1998. This increase reflects (i) higher interest incurred of $3,530,
(ii) an increase in amortization of deferred financing costs of $429 and (iii) a
reduction in the amount of interest capitalized in connection with development
projects of $566. Partially offsetting these items was a decrease in
amortization of interest rate protection contracts of $322.
The increase in interest incurred is primarily attributable to an increase of
$138,540 in the Company's average debt outstanding during the three months ended
September 30, 1999 compared to the same period in 1998 and an increase in the
weighted average interest rate for the three months ended September 30, 1999
compared to the same period in 1998. The weighted average interest rates were
7.47% and 7.15% for the 1999 and 1998 periods, respectively.
In connection with re-leasing space to new merchants, the Company incurred
$1,392 and $1,055 in capital expenditures during the three months ended
September 30, 1999 and 1998, respectively.
<PAGE>
Comparison of the nine months ended September 30, 1999 to the nine months ended
September 30, 1998
Summary
The Company reported net income of $20,865 and $7,265 for the nine months ended
September 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 nine months ended September 30, 1999, the net income applicable to common
shareholders was $16,571, or $0.38 and $0.06 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 nine months ended September 30, 1998, the net loss
applicable to common shareholders was $10,383, or $0.31 per common share on a
basic and diluted basis.
Revenues
Total revenues were $232,274 for the nine months ended September 30, 1999
compared to $156,524 for the nine months ended September 30, 1998, an increase
of $75,750, or 48.4%. Base rents increased $48,190, or 48.9%, in 1999 compared
to 1998. Straight-line rents (included in base rents) were $765 and $974 for the
nine months ended September 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 $1,997, or 49.9%, during the nine months
ended September 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 $22,156, or 47.9%, during the nine months ended
September 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 $3,407, or 44.9%, to $11,001 during the
nine months ended September 30, 1999 as compared to $7,594 for the nine months
ended September 30, 1998. This increase reflects higher (i) temporary tenant
income of $1,331, (ii) gross margin attributable to sales from the Company's
operation of an outlet store known as to Designer Connection of $798, (iii)
lease buyout income of $577, (iv) municipal assistance income of $544, and (v)
miscellaneous income of $157.
Expenses
Property operating expenses increased by $17,496, or 48.0%, to $53,918 for the
nine months ended September 30, 1999 compared to $36,422 for the same period in
1998. Real estate taxes increased by $5,446, or 46.9%, to $17,046 for the nine
months ended September 30, 1999 from $11,600 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 $22,200, or 64.8%, to $56,467
for the nine months ended September 30, 1999 compared to $34,267 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:
- --------------------------------------------------------------------------------
Nine months ended September 30, 1999 1998
- --------------------------------------------------------------------------------
Building and improvements $30,481 $19,433
Land improvements 4,272 2,618
Tenant improvements 19,423 10,429
Furniture and fixtures 1,690 933
Leasing commissions 601 854
------- -------
Total $56,467 $34,267
======= =======
================================================================================
TABLE 5 -- Components of Interest Expense
The components of interest expense are summarized as follows:
- --------------------------------------------------------------------------------
Nine months ended September 30, 1999 1998
- --------------------------------------------------------------------------------
Interest incurred $68,974 $41,711
Interest capitalized (3,387) (4,511)
Amortization of deferred financing costs 2,364 1,193
Amortization of interest rate protection
contracts 63 1,006
------- -------
Total $68,014 $39,399
======= =======
================================================================================
As shown in TABLE 5, interest expense for the nine months ended September 30,
1999 increased by $28,615, or 72.6%, to $68,014 compared to $39,399 for the same
period in 1998. This increase reflects (i) higher interest incurred of $27,263,
(ii) an increase in amortization of deferred financing costs of $1,171 and (iii)
a reduction in the amount of interest capitalized in connection with development
projects of $1,124. Partially offsetting these items was a decrease in
amortization of interest rate protection contracts of $943.
Other charges increased by $1,680, or 42.6%, to $5,626. This increase reflects
(i) increased selling, genral and administrative of $1,023 associated with the
Company's operation of its Designer Connection outlet stores, (ii) a higher
provision for uncollectible accounts of $608, and (iii) increased other
miscellaneous charges of $49.
In connection with re-leasing space to new merchants, the Company incurred
$2,231 and $1,496 in capital expenditures during the nine months ended September
30, 1999 and 1998, respectively.
<PAGE>
Liquidity and Capital Resources
Sources and Uses of Cash
For the nine months ended September 30, 1999, net cash provided by operating
activities was $77,137, cash used in investing activities was $57,931 and net
cash used in financing activities was $21,587.
The primary uses of cash for investing activities during the nine months ended
September 30, 1999 included: (i) costs associated with the development and
construction of two expansions to existing outlet centers aggregating 85,000
square feet of GLA which opened during 1999 (of which 21,000 and 64,000 square
feet opened in March and August, respectively), (ii) costs associated with the
construction of Prime Outlets of Puerto Rico and two expansions scheduled to
open before the end of the first quarter of next year, (iii) costs associated
with the completion of two new outlet centers and expansions to existing outlet
centers aggregating 931,000 square feet of GLA which opened during 1998, and
(iv) costs for pre-development activities associated with future developments.
The primary uses of cash for financing activities during the nine months ended
September 30, 1999 were (i) principal repayments on notes payable of $95,709,
(ii) preferred and common stock distributions of $57,100, (iii) distributions to
minority interests (including distributions to limited partners of the Operating
Partnership) of $9,712, (iv) Series C preferred stock redemption costs of
$45,054 and (v) deferred financing costs of $4,696. Such uses were partially
offset by proceeds from new borrowings of $190,684 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
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, 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
September 30, 1999, unused commitments available for borrowings under various
loan facilities were $3,504 in the aggregate.
Debt Repayments and Preferred Stock Dividends
The Company's aggregate indebtedness was $1,323,494 and $1,217,507 at September
30, 1999 and December 31, 1998, respectively. At September 30, 1999, such
indebtedness had a weighted average maturity of 4.9 years and bore interest at a
weighted average interest rate of 7.34% per annum. At September 30, 1999,
$1,015,936, or 76.8%, of such indebtedness bore interest at fixed rates and
$307,558, or 23.2%, of such indebtedness, including $28,500 of tax-exempt bonds,
bore interest at variable rates.
As of November 15, 1999, the Company is obligated to repay $49,291 of
indebtedness during the remainder of 1999 and $108,447 in 2000. The indebtedness
to be repaid in the remainder of 1999 includes $25,000 of borrowings under the
Line of Credit that matures on June 10, 2000 but will be required to be repaid
in advance of any repayment of the Subordinated Loan which is scheduled to
mature on December 31, 1999. The annualized cumulative dividends on the
Company's Series A Senior Cumulative Preferred Stock ("Senior Preferred Stock")
and Series B Cumulative Participating Convertible Preferred Stock ("Series B
Convertible Preferred Stock") outstanding as of September 30, 1999 are $6,038
and $16,635, 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 provided 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 12.0% fixed rate $33,000 unsecured promissory note which was repaid on
September 29, 1999. In the second stage, the Company repurchased the remaining
1,063,636 outstanding shares of its Series C Preferred Stock for an aggregate
purchase price of $10,636 on September 29, 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.
Debt Transactions
On November 15, 1999, the Company closed on a $20,000 subordinated loan (the
"Subordinated Loan") from an institutional lender. The Subordinated Loan (i)
bears interest at a fixed-rate of 15.0%, (ii) requires monthly interest-only
payments, (iii) matures on December 31, 1999, and (iv) is secured by a pledge of
a security interest in certain of the Company's ownership interests in, and the
available cash flow from five outlet centers, including Prime Outlets of Puerto
Rico, which is currently under construction. This collateral is also pledged to
secure borrowings under the Line of Credit (as defined below).
On November 12, 1999, the Company closed on $55,000 term loan (the "$55,000 Term
Loan") from a financial institution. The $55,000 Term Loan (i) bears interest at
30-day LIBOR plus 6.0%, (ii) requires monthly principal and interest payments,
and (iii) matures in two years. The Term Loan was issued by Prime Retail Capital
I, L.L.C. ("PRC"), a newly-formed wholly-owned subsidiary of Prime Retail, L.P.,
and is secured by the excess cash flow from 15 manufacturers' outlet centers
after the payment of senior debt service and reserves under an existing $350,645
first mortgage loan. The Term Loan also is secured by a pledge of PRC's 49.9%
limited partnership interest in partnerships that own twelve of those outlet
centers and Prime Retail, L.P.'s 100% equity interest in PRC. The Term Loan is
unconditionally guaranteed by Prime Retail, L.P. and Prime Retail, Inc.
The Company used the net cash proceeds from the Term Loan to repay $40,944 of
short-term indebtedness and to repay a portion of the borrowings under the Line
of Credit.
During October 1999, the Company refinanced its $28,250 of variable-rate,
tax-exempt revenue bonds by issuing $28,250 of fixed rate tax-exempt revenue
bonds (the "Fixed Rate Bonds"). The Fixed Rate Bonds bear interest ranging from
6.875% to 7.0%, require semi-annual interest payments and mature from December
15, 2012 through December 1, 2014. The Fixed Rate Bonds are redeemable by the
Company commencing in December 2006 at 102% of the outstanding principal
balance. The redemption price decreases incrementally each year thereafter
through December 2008, at which date the redemption price is fixed at 100% of
the outstanding principal balance.
On September 29, 1999, the Company received $40,000 of proceeds from a line of
credit facility (the "Line of Credit") with a group of institutional lenders.
These proceeds were used to repurchase the Company's Series C Preferred Stock.
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. The Line of Credit initially
was secured by a pledge of the Company's interest in one of its subsidiaries
that will be formed to engage in the design, development and operation of a
virtual outlet center on the internet. Subsequently this facility was amended
to, among other things, permit the Subordinated Loan and provide for the pledge
of assets securing such loan as additional collateral under the Line of Credit.
Borrowings under the Line of Credit rank senior to the Subordinated Loan and the
Company is prohibited from making any payment of principal in respect of the
Subordinated Loan so long as any obligations remain outstanding under the Line
of Credit. Upon repayment of the Line of Credit in full, the lenders will be
entitled to receive a cash payment that increases their internal rate of return
with respect to amounts advanced under such facility by 4.0% per annum (the
"Cash Payment"). Lenders under the Line of Credit also received warrants to
purchase a 5% interest in the Company's e-commerce subsidiary. In the event this
subsidiary completes an initial public offering prior to September 10, 2000,
such lenders must elect to (i) surrender these warrants, (ii) forgo the Cash
Payment or (iii) surrender a portion of the warrants and forgo a portion of the
Cash Payment based on the number of warrants so surrendered.
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. At September 30, 1999, the
Corporate Line had an outstanding principal balance of $22,175.
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 September 30, 1999, the Company is a guarantor or otherwise obligated with
respect to an aggregate of $12,774 of the indebtedness of Horizon Group
Properties, Inc. and its affiliates ("HGP") including a $10,000 obligation 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.
<PAGE>
Proposed Sale of Majority Interests in Three Outlet Centers
On August 6, 1999, the Company entered into an agreement to sell three factory
outlet centers, including two future expansions expected to be completed in
2000, to a new joint venture (the "Prime/Estein Venture") that will be 70% owned
by an affiliate of Estein & Associates USA, Ltd., a German real estate
investment company ("Estein"), and 30% owned by the Company. The total purchase
price for the three centers, including the two proposed expansions, is $274,000.
The Prime/Estein 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 Prime
Outlets at Birch Run. 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 in the form
of a credit to its capital account ($36,750). In accordance with the terms of
the joint venture agreement, the first mortgage debt is required 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 receive approximately $78,000 of cash proceeds, net of
(i) all closing costs, (ii) the cost of completing the proposed expansions, and
(iii) the Company's approximate $10,000 net investment in the "wrap-around"
first mortgage being provided on Prime Outlets at Birch Run. An additional
$10,000 of net proceeds is expected as a result of the refinancing of the
existing Williamsburg first mortgage loan.
Consummation of this transaction remains subject to various conditions,
including receipt of requisite financing. There can be no assurance that the
Prime/Estein Venture will close this transaction or that, if completed, the
terms of this transaction will not differ materially from those described above.
The Prime/Estein 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. The Prime/Estein 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 outlet centers
and expansions of certain existing outlet centers. The Company opened a 21,000
square foot expansion at Prime Outlets at Lebanon in March 1999 and a 64,000
square foot expansion at Prime Outlets at San Marcos In August 1999. The Home
Co., the Company's first home furnishings store which it owns a 47.6% interest
through a joint venture, occupies 64,000 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 two expansions consisting of 162,000 and 50,000 square feet of GLA at
Prime Outlets at Hagerstown and Prime Outlets at San Marcos, respectively. These
projects are scheduled to open during the first quarter of next year. At
September 30, 1999, the remaining budgeted capital expenditures for these
projects aggregated approximately $44,100, while anticipated capital
expenditures related to the completion of expansions of existing outlet centers
opened during 1998 (aggregating 931,000 square feet of GLA) approximated
$12,500.
In addition to the projects currently under construction, the Company continues
to pre-lease two new outlet centers and expansions to existing centers and
expects to start construction of between 200,000 to 400,000 square feet of
additional GLA during 2000. 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 $30,000 to $60,000.
As of September 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, (v) the potential sale of
equity or debt securities in the public or private capital markets, and (vi) the
proposed sale of majority interests in three outlet centers. 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.
Prime/Athena Venture
On September 13, 1999, the Company announced that it had entered into a
definitive agreement with Athena Group LLC, a private real estate investment
firm affiliated with A. Alfred Taubman, to establish a joint venture (the
"Prime/Athena Venture") to develop, own and operate outlet centers in Europe.
The agreement provides that the Prime/Athena Venture will be capitalized 80% by
Athena Group and 20% by the Company. In addition, the Company will contribute
certain management services to the Prime/Athena Venture. After each partner
receives a specified return on its invested capital, profits and cash flow will
be allocated 60% to Athena Group and 40% to the Company. Voting control of the
Prime/Athena Venture will be divided equally between Athena and the Company. It
is currently contemplated that the Company will contribute approximately $2,000
to the Prime/Athena Venture during the next 18 months.
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.
<PAGE>
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 has
reviewed date sensitive systems and equipment at its outlet centers. The
Company's assessment of non-information technology revealed that such systems
are Y2K compliant.
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 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.
<PAGE>
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 nine months ended
September 30, 1999 and 1998. FFO decreased $1,073, or 3.9%, to $26,129 for the
three months ended September 30, 1999 from $27,202 for the three months ended
September 30, 1998. This decrease was attributable to the Company's repurchase
of its Series C Preferred Stock which resulted in an additional $43,636 of
indebtedness. FFO increased $20,187, or 33.7%, to $80,097 for the nine months
ended September 30, 1999 from $59,910 for the nine months ended September 30,
1998. This increase was primarily due to the Portfolio Expansion and the Horizon
Merger.
<PAGE>
<TABLE>
TABLE 6 -- Funds from Operations
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Three months ended Nine months ended
September 30 September 30
-------------------------------- --------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before extraordinary loss and
allocation to minority interests $ 6,452 $10,572 $23,427 $ 9,721
FFO adjustments:
Loss on sale of real estate - - - 15,461
Real estate depreciation and amortization 19,204 16,327 55,768 33,820
Unconsolidated joint venture adjustments 473 303 902 908
------- ------- ------- -------
FFO before allocation to minority interests $26,129 $27,202 $80,097 $59,910
======= ======= ======= =======
====================================================================================================================================
</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 September 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........................ $ 4,291 $82,525 $ 50,645 $89,008 $348,761 $17,049 $423,657 $1,015,936
Average interest rate............ 7.19% 8.98% 7.39% 6.98% 7.76% 7.75% 7.10% 7.50%
Variable rate:
Principal........................ $51,167 $43,739 $152,000 $ 427 $ 778 $31,197 $ 28,250 $ 295,763
Average interest rate............ 7.58% 8.03% 6.84% 6.88% 6.88% 6.88% 3.60% 6.84%
====================================================================================================================================
</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 August 10, 1999 in the Circuit
Court for Baltimore City and removed to U.S. District Court for The District of
Maryland on August 20, 1999. The lawsuit alleges that the Company and its
related entities overcharged tenants for common area maintenance charges and
promotional fund charges. 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
None
Item 5. Other Information
None
Item 6. Exhibits or Reports on Form 8-K
(a) The following exhibits are included in this Form 10-Q:
Exhibit 12.1 -- Ratio of Earnings to Fixed Charges
and Preferred Stock Distributions and Dividends
Exhibit 27.1 - Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K:
On August 18, 1999, the Company filed a Current Report on Form 8-K, dated
August 11, 1999, reporting the Company had entered into an agreement to
sell three factory outlet centers, including two future expansions, to a
new joint venture (the "Prime/Estein Venture") that will be 70% owned by an
affiliate of Estein Associates USA, Ltd., a German real estate investment
company ("Estein"), and 30% owned by the Company. The total purchase price
for the three centers, including the two proposed expansions, is $274.0
million. The Current Report on Form 8-K also included as exhibits (i) the
Purchase and Sale Agreement dated August 6, 1999 and (ii) the Press Release
announcing the proposed transaction dated August 11, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRIME RETAIL, INC.
Registrant
Date: November 15, 1999 /s/ Abraham Rosenthal
----------------- ---------------------
Abraham Rosenthal
Chief Executive Officer
Date: November 15, 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>
Nine Months Ended September 30
----------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Income before minority interests $ 23,427 $ 9,721
Loss on sale of real estate - 15,461
Interest incurred 70,100 42,984
Amortization of capitalized interest 386 341
Amortization of debt issuance costs 2,364 1,193
Amortization of interest rate protection contracts 63 1,006
Less interest earned on interest rate protection contracts - (23)
Less capitalized interest (3,387) (4,511)
-------- --------
Earnings 92,953 66,172
-------- --------
Interest incurred 70,100 42,984
Amortization of debt issuance costs 2,364 1,193
Amortization of interest rate protection contracts 63 1,006
Preferred stock distributions and dividends 18,607 17,648
--------- --------
Combined Fixed Charges and
Preferred Stock Distributions and Dividends $ 91,134 $ 62,831
--------- --------
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Distributions and Dividends 1.02x 1.05x
========= ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> Sep-30-1999
<EXCHANGE-RATE> 1
<CASH> 3,384
<SECURITIES> 0
<RECEIVABLES> 21,998
<ALLOWANCES> 7,998
<INVENTORY> 0
<CURRENT-ASSETS> 91,909
<PP&E> 2,090,024
<DEPRECIATION> 180,106
<TOTAL-ASSETS> 2,001,827
<CURRENT-LIABILITIES> 103,905
<BONDS> 1,323,494
0
101
<COMMON> 434
<OTHER-SE> 569,659
<TOTAL-LIABILITY-AND-EQUITY> 2,001,827
<SALES> 0
<TOTAL-REVENUES> 232,274
<CGS> 0
<TOTAL-COSTS> 208,847
<OTHER-EXPENSES> 5,626
<LOSS-PROVISION> 1,396
<INTEREST-EXPENSE> 68,014
<INCOME-PRETAX> 23,427
<INCOME-TAX> 0
<INCOME-CONTINUING> 23,427
<DISCONTINUED> 0
<EXTRAORDINARY> 2,106
<CHANGES> 0
<NET-INCOME> 20,865
<EPS-BASIC> 0.38
<EPS-DILUTED> 0.06
</TABLE>
