United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended March 31, 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
- --------------------------------------------------------------------------------
(Former name, former address, or former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
As of May 3, 1999, the issuer had outstanding 43,217,152 shares of Common Stock,
$.01 par value per share.
<PAGE>
Prime Retail, Inc.
Form 10-Q
INDEX
PART I: FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1998 ....................................................... 1
Consolidated Statements of Operations for the three months
ended March 31, 1999 and 1998 ........................................... 2
Consolidated Statements of Cash Flows for the three
months ended March 31, 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............................... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......... 22
PART II: OTHER INFORMATION
Item 1. Legal Proceedings................................................... 23
Item 2. Changes in Securities............................................... 23
Item 3. Defaults Upon Senior Securities..................................... 23
Item 4. Submission of Matters to a Vote of Security Holders................ 23
Item 5. Other Information.................................................. 23
Item 6. Exhibits or Reports on Form 8-K.................................... 23
Signatures.................................................................. 24
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
<TABLE>
Prime Retail, Inc.
Consolidated Balance Sheets
(in thousands, except share information)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
March 31, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investment in rental property:
Land $ 206,707 $ 206,386
Buildings and improvements 1,766,155 1,753,641
Property under development 47,144 45,068
Furniture and equipment 11,449 10,627
--------- ----------
2,031,455 2,015,722
Accumulated depreciation (145,556) (127,747)
--------- ----------
1,885,899 1,887,975
Cash and cash equivalents 330 5,765
Restricted cash 33,008 34,969
Accounts receivable, net 24,758 21,233
Deferred charges, net 12,725 12,518
Due from affiliates, net 1,381 988
Investment in partnerships 8,965 8,386
Other assets 5,402 4,630
---------- ----------
Total assets $1,972,468 $ 1,976,464
========== ==========
Liabilities and Shareholders' Equity
Bonds payable $ 32,900 $ 32,900
Notes payable 1,232,594 1,184,607
Accrued interest 8,140 7,878
Real estate taxes payable 14,818 11,229
Construction costs payable 267 3,754
Accounts payable and other liabilities 64,134 69,879
Dividends and distributions payable 5,668 -
--------- ----------
Total liabilities 1,358,521 1,310,247
Minority interests 14,716 22,483
Series C Cumulative Convertible Redeemable Preferred Stock,
1,063,636 shares issued and outstanding at March 31, 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, 43,041,709 and 42,736,742
shares issued and outstanding, respectively 430 427
Additional paid-in capital 705,271 759,105
--------- ----------
Distributions in excess of net income (117,207) (115,943)
Total shareholders' equity 588,595 643,734
---------- ----------
Total liabilities and shareholders' equity $1,972,468 $ 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 ended March 31, 1999 1998
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<S> <C> <C>
Revenues
Base rents $49,302 $ 23,083
Percentage rents 2,062 865
Tenant reimbursements 23,671 10,743
Interest and other 3,549 2,817
------- --------
Total revenues 78,584 37,508
Expenses
Property operating 18,921 8,353
Real estate taxes 5,567 2,856
Depreciation and amortization 18,357 7,823
Corporate general and administrative 2,787 1,692
Interest 21,262 8,374
Other charges 2,392 959
------- --------
Total expenses 69,286 30,057
------- --------
Income before minority interests 9,298 7,451
Income allocated to minority interests - 5,461
------- --------
Net income 9,298 1,990
(Income) loss allocated to preferred shareholders 7,800 (4,166)
------- --------
Net income (loss) applicable to common shares $ 17,098 $ (2,176)
======= ========
Earnings per common share:
Basic $ 0.40 $ (0.08)
======= ========
Diluted $ 0.06 $ (0.08)
======= ========
Weighted average common shares outstanding
Basic 42,951 27,295
======= ========
Diluted 58,376 27,295
======= ========
Distributions declared per common share $ 0.295 $ 0.295
======= ========
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
Prime Retail, Inc.
Consolidated Statements of Cash Flows
(in thousands)
<CAPTION>
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Three months ended March 31, 1999 1998
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<S> <C> <C>
Operating Activities
Net income $ 9,298 $ 1,990
Adjustments to reconcile net income to
net cash provided by operating activities:
Income allocated to minority interests - 5,461
Depreciation 18,172 7,511
Amortization of deferred financing costs and
interest rate protection contracts 650 509
Amortization of leasing commissions 185 312
Provision for uncollectible accounts receivable 1,054 306
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (4,579) 110
(Increase) decrease in due from affiliates, net (393) 639
Decrease in other assets 499 13,425
Increase in accrued interest 262 117
Decrease in accounts payable and other liabilities (2,567) (4,802)
------- ------
Net cash provided by operating activities 22,581 25,578
Investing Activities
Purchase of buildings and improvements (10,462) (4,247)
Increase in property under development (9,197) (23,155)
------- -------
Cash used in investing activities (19,659) (27,402)
Financing Activities
Proceeds from notes payable 34,587 32,611
Principal repayments on notes payable (19,600) (22,102)
Deferred financing fees (444) (85)
Distributions and dividends paid (19,650) (11,498)
Distributions to minority interests (3,250) (2,952)
------ -------
Net cash provided by (used in) financing activities (8,357) (4,026)
------ -------
Decrease in cash and cash equivalents (5,435) (5,850)
Cash and cash equivalents at beginning of period 5,765 6,373
------ -------
Cash and cash equivalents at end of period $ 330 $ 523
====== =======
====================================================================================================================================
</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>
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Three months ended March 31, 1999 1998
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<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.
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 three months
ended March 31, 1999, (i) a redemption discount of $13,782 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) is
included in the computation of basic EPS and (ii) incremental shares of 15,425
are included in the computation of diluted EPS. For the three months ended March
31, 1998, diluted EPS is equivalent to basic EPS as the effect of these
exercises and conversions was anti-dilutive.
<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 three months ended March 31, 1998 that were otherwise
allocable to minority interests were allocated to common shareholders. During
the three months ended March 31, 1999, the cumulative amount of distributions
and losses that were allocable to minority interests that were previously
allocated to common shareholders was reduced by $3,819 and the remaining balance
at March 31, 1999 was $10,810.
Note 4 - Notes Payable
As of March 31, 1999, the Company is a guarantor or otherwise obligated with
respect to an aggregate of $35,383 of the indebtedness of Horizon Group
Properties, Inc. and its affiliates. As of March 31, 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 in June 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 $10,684
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 $2,629 which
bears interest at a rate of LIBOR plus 2.50%, matures in December 2002, and is
collateralized by a first mortgage on an office building in Muskegon, Michigan;
(iv) a secured loan with an outstanding balance of $277 which bears interest at
a rate of prime, matures in December 2000 and is collateralized by furniture and
fixtures; and (v) an unsecured revolving credit facility with an outstanding
balance of $3,000 which bears a rate of interest of prime and was repaid on
April 30, 1999. In addition, the Company is a guarantor of $10,000 of
obligations under HGP's $108,205 secured credit facility which bears a rate of
interest of LIBOR plus 1.90%, matures in July 2001, and is collateralized by 13
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 $12,906.
<PAGE>
Note 5 -Redeemable Equity
On March 31, 1999, the Company entered into an agreement pursuant to which it
will repurchase 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 will repurchase the remaining 1,063,636
shares of its Series C Preferred Stock for an aggregate purchase price of
$10,636 on or before September 30, 1999. In addition, the sole holder of the
Series C Preferred Stock irrevocably waived the Company's obligation to comply
with the financial covenants contained in its charter relating to the Series C
Preferred Stock, as well as the rights of such holder to require the Company to
repurchase the Series C Preferred Stock in certain circumstances at its original
issuance price of $13.75 per share, plus accrued but unpaid distributions.
Additionally, 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.
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.
<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.
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 14,369,000 square feet of gross
leasable area ("GLA") at March 31, 1999, compared to 28 operating manufacturers'
outlet centers totaling 7,237,000 square feet of GLA at March 31, 1998.
<PAGE>
During the three months ended March 31, 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, the Company acquired and integrated 22
of Horizon's manufacturers' outlet centers into its existing portfolio on June
15, 1998 adding 6,626,000 square feet of GLA in the aggregate. Additionally, in
connection with the Merger Transactions, the Company sold two manufacturers'
outlet centers to Horizon Group Properties, Inc. ("HGP") totaling 426,000 square
feet of GLA on June 15, 1998. 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 expansion to an existing factory outlet center totaling
20,000 square feet of GLA opened during the three months ended March 31, 1998).
The significant increase in the number of the Company's operating properties and
total GLA since March 31, 1998 are collectively referred to as the "Portfolio
Expansion and the Horizon Merger".
<PAGE>
<TABLE>
Portfolio of Properties
March 31, 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 92
III October 1994 60,000 100
------- ---
229,000 98
Prime Outlets at Birch Run (2) - Birch Run, Michigan................... I-XVI Various 591,000 98
XVII-XVIII 1997 133,000 98
------- ---
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 90
IV July 1994 42,000 93
V December 1994 26,000 98
VI May 1995 58,000 99
------- ---
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 49,000 100
IV 1995 98,000 100
------- ---
274,000 100
Prime Outlets at Kenosha (2) - Kenosha, Wisconsin...................... I September 1988 89,000 97
II July 1989 65,000 97
III May 1990 115,000 96
------- ---
269,000 97
Prime Outlets at Silverthorne (2) - Silverthorne, Colorado............. I November 1988 95,000 92
II November 1990 75,000 92
III November 1993 88,000 86
------- ---
258,000 90
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 88
II October 1989 36,000 94
III April 1993 49,000 97
------- ---
174,000 100
Prime Outlets at Queenstown (2) - Queenstown, Maryland................. I June 1989 67,000 100
II June 1990 55,000 99
III January 1991 16,000 97
IV June 1992 14,000 97
V August 1993 69,000 100
------- ---
221,000 99
</TABLE>
<PAGE>
<TABLE>
Portfolio of Properties (continued)
March 31, 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 90%
II January 1992 101,000 97
III May 1995 163,000 93
------- ---
359,000 93
Prime Outlets at Oshkosh (2) - Oshkosh, Wisconsin...................... I November 1989 215,000 93
II July 1991 45,000 99
------- ---
260,000 94
Prime Outlets at Warehouse Row (3) - Chattanooga, Tennessee............ I November 1989 95,000 95
II August 1993 26,000 94
------- ---
121,000 95
Prime Outlets at Gilroy (2) - Gilroy, California....................... I January 1990 94,000 100
II August 1991 109,000 100
III October 1992 137,000 97
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 94
Prime Outlets at Sedona - Sedona, Arizona ............................. I August 1990 82,000 92
Prime Outlets at San Marcos - San Marcos, Texas........................ I August 1990 177,000 100
II August 1991 70,000 100
III August 1993 117,000 98
IIIB November 1994 20,000 91
IIIC November 1995 35,000 100
IIID May 1998 18,000 100
------- ---
437,000 99
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 88
------- ---
179,000 84
Prime Outlets at Ellenton - Ellenton, Florida.......................... I October 1991 187,000 100
II August 1993 123,000 100
III October 1996 30,000 100
IV November 1998 141,000 91
------- ---
481,000 97
Prime Outlets at Morrisville - Raleigh - Durham, North Carolina........ I October 1991 181,000 100
II July 1996 6,000 100
------- ---
187,000 100
Prime Outlets at Naples - Naples/Marco Island, Florida................. I December 1991 94,000 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 88
II June 1994 163,000 96
III October 1994 26,000 79
------- ---
282,000 91
Prime Outlets at Niagara Falls USA - Niagara Falls, New York........... I July 1992 300,000 99
II August 1995 234,000 90
------- ---
534,000 95
</TABLE>
<PAGE>
<TABLE>
Portfolio of Properties (continued)
March 31, 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 93
III August 1994 21,000 100
------- ---
250,000 93
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 94
III November 1993 95,000 97
IV August 1997 110,000 97
------- ---
480,000 97
Prime Outlets at Bend - Bend, Oregon................................... I December 1992 97,000 97
II September 1998 35,000 99
------- ---
132,000 97
Prime Outlets at Jeffersonville II (2) - Jeffersonville, Ohio.......... I March 1993 126,000 97
II August 1993 123,000 96
III October 1994 65,000 77
------- ---
314,000 93
Prime Outlets at Jeffersonville I - Jeffersonville, Ohio............... I July 1993 186,000 91
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 90
Prime Outlets at Gainesville - Gainesville, Texas...................... I August 1993 210,000 87
II November 1994 106,000 99
------- ---
316,000 91
Prime Outlets at Loveland - Loveland, Colorado......................... I May 1994 139,000 98
II November 1994 50,000 100
III May 1995 114,000 91
IV May 1996 25,000 100
------- ---
328,000 96
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 99
II November 1994 95,000 98
III November 1995 85,000 96
IV November 1996 118,000 99
------- ---
533,000 98
Prime Outlets at Huntley - Huntley, Illinois........................... I August 1994 192,000 96
II November 1995 90,000 89
------- ---
282,000 89
Prime Outlets at Florida City - Florida City, Florida.................. I September 1994 208,000 94
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 92
Prime Outlets at Vero Beach (2) - Vero Beach, Florida.................. I November 1994 210,000 98
II August 1995 116,000 95
------- ---
326,000 97
</TABLE>
<PAGE>
<TABLE>
Portfolio of Properties (continued)
March 31, 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 208,000 100%
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 91
II November 1996 105,000 58
------- ---
296,000 79
Prime Outlets at Darien (5) - Darien, Georgia.......................... I July 1995 238,000 84
IIA November 1995 49,000 99
IIB July 1996 20,000 100
------- ---
307,000 88
Prime Outlets at New River (4) - Phoenix, Arizona...................... I September 1995 217,000 90
II September 1996 109,000 90
------- ---
326,000 90
Prime Outlets at Gulfport (5) - Gulfport, Mississippi.................. I November 1995 228,000 99
IIA November 1996 40,000 73
IIB November 1997 38,000 100
------- ---
306,000 96
Prime Outlets at Lodi - Burbank, Ohio.................................. I November 1996 205,000 95
IIA May 1998 33,000 92
IIB November 1998 75,000 82
------- ---
313,000 92
Prime Outlets at Gaffney - Gaffney, South Carolina..................... I November 1996 235,000 99
II July 1998 70,000 88
------- ---
305,000 97
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 67
------- ---
229,000 96
Prime Outlets at Hagerstown - Hagerstown, Maryland..................... I August 1998 218,000 100
II November 1998 103,000 81
321,000 94
------- ---
Total Manufacturers' Outlet Centers (6)................................ 14,369,000 95%
========== ==
====================================================================================================================================
</TABLE>
Notes:
(1) Percentage reflects fully executed leases as of March 31, 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 Group, Inc.
(3) The Company owns a 2% partnership interest as the sole general partner in
Phase I of this property but is entitled to 99% of the property's operating
cash flow and net proceeds from a sale or refinancing. An unrelated third
party holds a 35% limited partnership interest and the Company holds a 65%
general partnership interest in the partnership that owns Phase II of this
property. Phase I of this mixed-use development includes 154,000 square
feet of office space and Phase II includes 5,000 square feet of office
space. The total office space of 159,000 square feet is not included in
this table and such space was 76% leased as of March 31, 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 88% leased
as of March 31, 1999.
<PAGE>
Results of Operations
Comparison of the three months ended March 31, 1999 to the three months ended
March 31, 1998
Summary
The Company reported net income of $9,298 and $1,990 for the three months ended
March 31, 1999 and 1998, respectively. For the three months ended March 31,
1999, the net income applicable to common shareholders was $17,098, or $0.40 and
$0.06 per common share on a basic and diluted basis, respectively. For the three
months ended March 31, 1998, the net loss applicable to common shareholders was
$2,176, or $0.08 per common share on a basic and diluted basis.
Revenues
Total revenues were $78,584 for the three months ended March 31, 1999 compared
to $37,508 for the three months ended March 31, 1998, an increase of $41,076, or
109.5%. Base rents increased $26,219, or 113.6%, in 1999 compared to 1998.
Straight-line rents (included in base rents) were $209 and $(26) for the three
months ended March 31, 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 $1,197, or 138.4%, during the three
months ended March 31, 1999 compared to the same period in 1998. This increase
was attributable to the Portfolio Expansion and the Horizon Merger. For the
three months ended March 31, 1999, same-space sales in centers owned by the
Company increased 0.9% 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 same-space sales for the
year ended December 31, 1998 were $248.44 per square foot. For the three months
ended March 31, 1999, same-store sales increased by 0.2% 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 $12,928, or 120.3%, primarily due to
the Portfolio Expansion and the Horizon Merger.
Interest and other income increased by $732, or 26.0%, to $3,549 during the
three months ended March 31, 1999 as compared to $2,817 for the three months
ended March 31, 1998. The increase reflects higher (i) temporary tenant income
of $440, (ii) municipal assistance income of $250, (iii) leasing commissions of
$191, and (iv) other ancillary income of $80 partially offset by a decrease in
interest income of $229. The reduction in interest income was primarily the
result of the use of a portion of the Company's expansion loan escrow account to
fund certain of its development activities during 1998 and 1999. The expansion
loan escrow account is included in restricted cash in the Consolidated Balance
Sheets.
Expenses
Property operating expenses increased by $10,568, or 126.5%, to $18,921 for the
three months ended March 31, 1999 compared to $8,353 for the same period in
1998. Real estate taxes increased by $2,711, or 94.9%, to $5,567 for the three
months ended March 31, 1999 from $2,856 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 $10,534, or 134.7%, to
$18,357 for the three months ended March 31, 1999 compared to $7,823 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 March 31, 1999 1998
- --------------------------------------------------------------------------------
Building and improvements $10,122 $ 4,324
Land improvements 1,378 830
Tenant improvements 6,184 2,075
Furniture and fixtures 488 282
Leasing commissions 185 312
------- -------
Total $18,357 $ 7,823
======= =======
================================================================================
TABLE 3 - Components of Interest Expense
The components of interest expense are summarized as follows:
- --------------------------------------------------------------------------------
Three months ended March 31,
1999 1998
- --------------------------------------------------------------------------------
Interest incurred $21,686 $9,253
Interest capitalized (1,074) (1,388)
Amortization of deferred financing costs 593 167
Amortization of interest rate protection contracts 57 342
------- ------
Total $21,262 $8,374
======= ======
================================================================================
As shown in TABLE 3, interest expense for the three months ended March 31, 1999
increased by $12,888, or 153.9%, to $21,262 compared to $8,374 for the same
period in 1998. This increase reflects (i) higher interest incurred of $12,433,
(ii) an increase in amortization of deferred financing costs of $335 and (iii) a
reduction in the amount of interest capitalized in connection with development
projects of $314. Partially offsetting these items was a decrease in
amortization of interest rate protection contracts of $194.
The increase in interest incurred is primarily attributable to an increase of
$703,844 in the Company's average debt outstanding during the three months ended
March 31, 1999 compared to the same period in 1998 offset by a slight decrease
in the weighted average interest rate for the three months ended March 31, 1999
compared to the same period in 1998. The weighted average interest rates were
7.17% and 7.20% for the 1999 and 1998 periods, respectively.
Other charges increased by $1,433, or 149.4%, to $2,392. This increase reflects
(i) a higher provision for uncollectible accounts receivable of $748, (ii)
increased selling and marketing costs of $416 associated with the Company's
operation of the outlet store known as Designer Connection, (iii) increased
ground lease expense of $196, and (iv) increased other miscellaneous charges of
$73.
<PAGE>
In connection with re-leasing space to new merchants, the Company incurred $786
and $195 in capital expenditures during the three months ended March 31, 1999
and 1998, respectively.
Liquidity and Capital Resources
Sources and Uses of Cash
For the three months ended March 31, 1999, net cash provided by operating
activities was $22,581, cash used in investing activities was $19,659, and net
cash used in financing activities was $8,357.
The primary uses of cash for investing activities during the three months ended
March 31, 1999 included: (i) costs associated with the development and
construction of two expansions to existing manufacturers' outlet centers
aggregating 102,000 square feet of GLA which are expected to open during 1999
(of which 21,000 square feet of GLA opened during the first quarter of 1999),
(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 three months ended
March 31, 1999 were (i) principal repayments on notes payable of $19,600, (ii)
preferred and common stock distributions of $19,650, (iii) distributions to
minority interests (including distributions to limited partners of the Operating
Partnership) of $3,250, and (iv) deferred financing costs of $444. Such uses
were partially offset by proceeds from new borrowings of $34,587 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
March 31, 1999, unused commitments available for borrowings under various loan
facilities were $18,436 in the aggregate.
Debt Repayments and Preferred Stock Dividends
The Company's aggregate indebtedness was $1,265,494 and $1,217,507 at March 31,
1999 and December 31, 1998, respectively. At March 31, 1999, such indebtedness
had a weighted average maturity of 5.7 years and bore interest at a weighted
average interest rate of 7.21% per annum. At March 31, 1999, $982,007, or 77.6%,
of such indebtedness bore interest at fixed rates and $283,487, or 22.4%, of
such indebtedness, including $28,250 of tax-exempt bonds, bore interest at
variable rates.
The Company is obligated to repay $124,550 of indebtedness during the remainder
of 1999 and $45,345 in 2000. In addition, the Company is obligated to repay
$10,636 of indebtedness on September 30, 1999 in connection with its repurchase
of the remaining outstanding Series C Cumulative Convertible Redeemable
Preferred Stock ("Series C Preferred Stock"). 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
March 31, 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 pursuant to which it
will repurchase 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 will repurchase the remaining 1,063,636
shares of its Series C Preferred Stock for an aggregate purchase price of
$10,636 on or before September 30, 1999. In addition, the sole holder of the
Series C Preferred Stock irrevocably waived the Company's obligation to comply
with the financial covenants contained in its charter relating to the Series C
Preferred Stock, as well as the rights of such holder to require the Company to
repurchase the Series C Preferred Stock in certain circumstances at its original
issuance price of $13.75 per share, plus accrued but unpaid distributions.
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.
Debt Transactions
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 paid a pre-payment penalty of $2,640 which it will
record as an extraordinary loss on early extinguishment of debt in its second
quarter results.
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 May 27, 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 90% leased at March 31, 1999.
As of March 31, 1999, the Company is a guarantor or otherwise obligated with
respect to an aggregate of $35,383 of the indebtedness of HGP and its
affiliates. As of March 31, 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 in June 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 $10,684 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 $2,629 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; (iv) a secured loan with an
outstanding balance of $277 which bears interest at a rate of prime, matures in
December 2000 and is collateralized by furniture and fixtures; and (v) an
unsecured revolving credit facility with an outstanding balance of $3,000 which
bears a rate of interest of prime and was repaid on April 30, 1999. In addition,
the Company is a guarantor of $10,000 of obligations under HGP's $108,205
secured credit facility which bears a rate of interest of LIBOR plus 1.90%,
matures in July 2001, and is collateralized by 13 properties located throughout
the United States. The Company is pursuing an agreement with HGP pursuant to
which it would purchase HGP's and its affilaites' 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 $12,906.
<PAGE>
Planned Development
The Company's goal is to continue to develop new centers and expand its existing
centers if such development would be accretive based on the current cost of
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 previously expected to open
approximately 555,000 square feet of GLA during 1999. However, because of the
Company's current cost of capital, management may elect to delay construction of
certain projects until such time that it is reasonably confident that minimum
returns on total development cost and equity can be achieved. In March 1999, a
21,000 square foot expansion opened at Prime Outlets at Lebanon and an 81,000
square foot expansion at Prime Outlets at San Marcos is under construction and
will open in the third quarter of 1999. 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. At March 31, 1999, the remaining budgeted
capital expenditures for projects under construction including Prime Outlets at
Lebanon aggregated approximately $29,400, 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
$16,100.
In addition to the projects currently under construction, management plans to
begin development of two new manufacturers' outlet centers and several
expansions during the next fifteen months, if such projects achieve the
Company's minimum return on total development cost and equity. Such projects are
expected to contain approximately 844,000 square feet of GLA, in the aggregate,
and have a total expected development cost of approximately $113,700. As of
March 31, 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.
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.
<PAGE>
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 expected to be Y2K compliant by
mid-1999. 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 by
mid-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 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, we 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.
<PAGE>
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 4 provides a reconciliation of income before allocations to minority
interests and preferred shareholders to FFO for the three months ended March 31,
1999 and 1998. FFO increased $12,220, or 79.1% to $27,675 for the three months
ended March 31, 1999 from $15,455 for the three months ended March 31, 1998.
This increase was primarily due to the Portfolio Expansion and the Horizon
Merger.
TABLE 4 - Funds from Operations
- --------------------------------------------------------------------------------
Three months ended March 31, 1999 1998
- --------------------------------------------------------------------------------
Income before allocations to minority interests and
preferred shareholders $ 9,298 $ 7,451
FFO adjustments:
Real estate depreciation and amortization 18,122 7,701
Unconsolidated joint venture adjustments 255 303
FFO before allocations to minority interests and -------- --------
preferred shareholders $ 27,675 $ 15,455
======== ========
================================================================================
<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 March 31, 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...................... $44,954 $43,174 $ 50,746 $88,976 $348,720 $15,526 $389,911 $982,007
Average interest rate.......... 10.72% 7.07% 7.39% 6.97% 7.76% 7.79% 7.01% 7.48%
Variable rate:
Principal...................... $79,596 $ 2,171 $142,000 $ 427 $ 778 $30,265 $ 28,250 $283,487
Average interest rate.......... 7.00% 6.90% 6.41% 6.46% 6.46% 6.46% 3.03% 6.25%
====================================================================================================================================
</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
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 3.3 - Amended and Restated By-Laws of Prime Retail,
Inc.
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 April 6, 1999, the Company filed a Current Report on Form
8-K, dated March 31, 1999, announcing the Company entered
into an agreement to repurchase its outstanding shares of
Series C Cumulative Convertible Redeemable Preferred Stock.
No financial statements were included.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRIME RETAIL, INC.
Registrant
Date: May 14, 1999 /s/ Abraham Rosenthal
---------------------
Abraham Rosenthal
Chief Executive Officer
Date: May 14, 1999 /s/ Robert P. Mulreaney
-----------------------
Robert P. Mulreaney
Executive Vice President,
Chief Financial Officer
and Treasurer
PRIME RETAIL, INC.
SECOND AMENDED AND RESTATED
BY-LAWS
adopted as of April 9, 1999
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 OFFICES.................................................... 1
ARTICLE 2 STOCKHOLDERS............................................... 1
Section 2.01 Place of Meetings.................................... 1
Section 2.02 Annual Meeting....................................... 1
Section 2.03 Special Meetings..................................... 1
Section 2.04 Notice of Stockholder Meetings....................... 3
Section 2.05 Quorum............................................... 5
Section 2.06 Voting and Proxies................................... 5
Section 2.07 Presiding Officer of Meetings........................ 5
Section 2.08 Secretary of Meetings................................ 6
Section 2.09 Action in Lieu of Meeting............................ 6
ARTICLE 3 BOARD OF DIRECTORS......................................... 6
Section 3.01 Powers............................................... 6
Section 3.02 Number; Election; Qualification; Term................ 6
Section 3.03 Vacancies............................................ 8
Section 3.04 Place of Meetings.................................... 8
Section 3.05 Annual Meeting....................................... 8
Section 3.06 Regular Meetings..................................... 8
Section 3.07 Special Meetings..................................... 8
Section 3.08 Organization......................................... 9
Section 3.09 Quorum............................................... 9
Section 3.10 Vote................................................. 9
Section 3.11 Action in Lieu of a Meeting.......................... 9
Section 3.12 Conference Call Meeting.............................. 9
Section 3.13 Removal of Director.................................. 9
Section 3.14 Chairman of the Board................................ 9
ARTICLE 4 COMMITTEES................................................. 9
Section 4.01 Committees of the Board.............................. 10
Section 4.02 Procedures; Minutes of Meetings...................... 10
ARTICLE 5 OFFICERS................................................... 10
Section 5.01 General.............................................. 10
Section 5.02 Powers and Duties.................................... 10
Section 5.03 Term of Office; Removal and Vacancy.................. 10
Section 5.04 Chairman of the Board................................ 10
Section 5.05 Chief Executive Officer.............................. 11
Section 5.06 President............................................ 11
Section 5.07 Secretary............................................ 11
Section 5.08 Treasurer............................................ 12
<PAGE>
ARTICLE 6 CAPITAL STOCK.............................................. 12
Section 6.01 Certificates of Stock................................ 12
Section 6.02 Transfer of Stock.................................... 12
Section 6.03 Ownership of Stock................................... 12
Section 6.04 Lost, Stolen, or Destroyed Certificates.............. 13
ARTICLE 7 MISCELLANEOUS.............................................. 13
Section 7.01 Corporate Seal....................................... 13
Section 7.02 Fiscal Year.......................................... 13
ARTICLE 8 INDEMNIFICATION; TRANSACTIONS WITH INTERESTED PERSONS...... 13
Section 8.01 Indemnification...................................... 13
Section 8.02 Transactions With Interested Persons................. 13
ARTICLE 9 NOTICES.................................................... 14
Section 9.01 Notice............................................... 14
Section 9.02 Waiver............................................... 14
ARTICLE 10 AMENDMENT................................................. 15
<PAGE>
PRIME RETAIL, INC.
SECOND AMENDED AND RESTATED
BY-LAWS
adopted as of April 9, 1999
ARTICLE 1
OFFICES
Prime Retail, Inc. (the "Corporation") shall maintain a registered office
in the State of Maryland as required by law. The Corporation may also have
offices at other places, within or without the State of Maryland as the business
of the Corporation may require.
ARTICLE 2
STOCKHOLDERS
Section 2.01 ....Place of Meetings . Meetings of stockholders shall be held
at such place, within or without the State of Maryland, but within the United
States, as the Board of Directors designates.
Section 2.02 ....Annual Meeting . The annual meeting of the stockholders
shall be held on a date during the thirty-one (31) day period beginning May 10
and at such time as the Board of Directors may from time to time designate. At
each annual meeting, stockholders entitled to vote shall elect the members of
the Board of Directors and transact such other business as may be properly
brought before the meeting in accordance with the Amended and Restated Articles
of Incorporation of the Corporation (the "Articles") and, to the extent not
inconsistent therewith, notice procedures specified in Section 2.04 below.
Section 2.03 ....Special Meetings . Special meetings of stockholders may be
called by the Chairman of the Board of Directors and shall be called by the
Chairman of the Board of Directors or the Secretary at the request in writing of
the Board of Directors. Except as may otherwise be provided in the Articles,
special meetings of the stockholders shall also be called by the Secretary upon
the request in writing of the holders of shares entitled to cast 50 percent
(50%) or more of all of the votes entitled to be cast at the meeting. Such a
request shall state the purpose or purposes of the proposed meeting and the
stockholders who make the request shall pay the reasonably estimated cost of
preparing and mailing the notice of the meeting prior to its being sent.
<PAGE>
Section 2.04 ....Notice of Stockholder Meetings .
(a) Required Notice. Written notice stating the place, day and hour of any
annual or special stockholder meeting shall be delivered not less than ten (10)
nor more than sixty (60) days before the date of the meeting, either personally
or by mail, by or at the direction of the Chairman, the Board of Directors, or
other persons calling the meeting, to each stockholder of record entitled to
vote at such meeting and to any other stockholder entitled by the Maryland
General Corporation Law as from time to time in effect (the "MGCL") or the
Articles to receive notice of the meeting. Notice shall be deemed to be
effective at the earlier of: (i) when deposited in the United States mail,
addressed to the stockholder at his address as it appears on the stock transfer
books of the Corporation, with postage thereon prepaid; (ii) on the date shown
on the return receipt if sent by registered or certified mail, return receipt
requested, and the receipt is signed by or on behalf of the addressee; (iii)
when received; or (iv) five (5) days after deposit in the United States mail, if
mailed postpaid and correctly addressed to an address other than that shown in
the Corporation's current record of stockholders.
(b) Adjourned Meeting. If any stockholder meeting is adjourned to a
different date, time, or place, notice need not be given of the new date, time,
and place, if the new date, time, and place is announced at the meeting before
adjournment. But if a new record date for the adjourned meeting is or must be
fixed then notice must be given pursuant to the requirements of paragraph (a) of
this Section 2.04, to those persons who are stockholders as of the new record
date.
(c) Waiver of Notice. A stockholder may waive notice of the meeting (or any
notice required by the MGCL, the Articles, or these By-laws), by a writing
signed by the stockholder entitled to the notice, which is delivered to the
Corporation (either before or after the date and time stated in the notice) for
inclusion in the minutes or filing with the corporate records.
A stockholder's attendance at a meeting:
(1) waives objection to lack of notice or defective notice of the
meeting unless the stockholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting; or
(2) waives objection to consideration of a particular matter at the
annual meeting that is not within the purpose or purposes described in the
meeting notice, unless the stockholder objects to considering the matter
when it is presented.
<PAGE>
(d) Contents of Notice. The notice of each special stockholder meeting
shall include a description of the purpose or purposes for which the
meeting is called. Except as provided in Section 2.04(e), or as provided in
the Articles, or otherwise in the MGCL, the notice of an annual stockholder
meeting need not include a description of the purpose or purposes for which
the meeting is called.
(e) Notice of Business. Notwithstanding anything else in these By-laws
to the contrary, no business may be transacted at an annual meeting of
stockholders, other than business that is either (i) specified in the
notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors (or any duly authorized committee thereof), (ii)
otherwise properly brought before the annual meeting by or at the direction
of the Board of Directors (or any duly authorized committee thereof) or
(iii) otherwise properly brought before the annual meeting by any
stockholder of the Corporation (A) who is a stockholder of record on the
date of the giving of the notice provided for in this Section 2.04 and on
the record date for the determination of stockholders entitled to vote at
such annual meeting and (B) who complies with the notice procedures set
forth in the Articles and, to the extent not inconsistent therewith, this
Section 2.04.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting of the stockholders by a stockholder,
such stockholder must have given timely notice thereof in proper written form to
the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than sixty (60) days nor more than ninety (90) days prior to the
anniversary date of the immediately preceding annual meeting of stockholders;
provided, however, that in the event that the annual meeting of stockholders is
called for a date that is not within thirty (30) days before or after such
anniversary date, notice by the stockholder in order to be timely must be so
received not later than the close of business on the tenth (10th) day following
the day on which such notice of the date of the annual meeting of stockholders
was mailed or such public disclosure of the date of the annual meeting of
stockholders was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must
set forth as to each matter such stockholder proposes to bring before the annual
meeting of stockholders (i) a brief description of the business desired to be
brought before the annual meeting of stockholders and the reasons for conducting
such business at the annual meeting of stockholders, (ii) the name and record
address of such stockholder, (iii) the class or series and number of shares of
capital stock of the Corporation which are owned beneficially or of record by
such stockholder, (iv) a description of all arrangements or understandings
between such stockholder and any other person or persons (including their names)
in connection with the proposal of such business by such stockholder and any
material interest of such stockholder in such business and (v) a representation
that such stockholder intends to appear in person or by proxy at the annual
meeting of stockholders to bring such business before the meeting.
<PAGE>
No business shall be conducted at the annual meeting of stockholders except
business brought before such annual meeting in accordance with the procedures
set forth in the Articles and, to the extent not inconsistent therewith, this
Section 2.04; provided, however, that, once business has been properly brought
before the annual meeting of stockholders in accordance with such procedures,
nothing in this Section 2.04 shall be deemed to preclude discussion by any
stockholder of any such business. If the Chairman of an annual meeting of
stockholders determines that business was not properly brought before the annual
meeting of stockholders in accordance with the foregoing procedures, the
Chairman shall declare to the meeting that the business was not properly brought
before the meeting and such business shall not be transacted.
Section 2.05 Quorum . The holders, present in person or represented by
proxy, of 50 percent (50%) plus one (1) or more of the issued and outstanding
shares of capital stock entitled to be voted at a meeting shall constitute a
quorum for the transaction of business at the meeting. If less than a quorum is
present, the holders of a majority of such shares whose holders are so present
or represented may from time to time adjourn the meeting to another place, date,
or hour until a quorum is present, whereupon the meeting may be held, as
adjourned, without further notice except as required by law or by Section 2.04.
Section 2.06 Voting and Proxies . When a quorum is present at a meeting of
the stockholders, the vote of the holders of a majority of the shares of capital
stock entitled to be voted whose holders are present in person or represented by
proxy shall decide any question brought before the meeting, unless the question
is one upon which, by express provision of law or of the Articles or of these
By-laws, a different vote is required. Unless otherwise provided in the
Articles, each stockholder shall at a meeting of the stockholders be entitled to
one (1) vote in person or by proxy for each share of capital stock entitled to
be voted held by such stockholder. To be valid, a proxy must be executed in
writing by the stockholder or by his duly authorized attorney-in-fact. Such
proxy shall be filed with the Secretary of the Corporation or other persons
authorized to tabulate votes before or at the time of the meeting. No proxy
shall be valid after eleven (11) months from the date of its execution unless
otherwise provided in the proxy. At a meeting of the stockholders, all questions
relating to the qualifications of voters, the validity of proxies, and the
acceptance or rejection of votes shall be decided by the presiding officer of
the meeting.
Section 2.07 Presiding Officer of Meetings . The Chairman of the Board of
Directors, or in his absence the Chief Executive Officer, shall preside at all
meetings of the stockholders. In the absence of the Chairman of the Board and
the Chief Executive Officer, the President shall preside at such meetings. In
the absence of the Chairman of the Board, the Chief Executive Officer and the
President, the presiding officer shall be elected by vote of the holders of a
majority of the shares of capital stock entitled to be voted whose holders are
present in person or represented by proxy at the meeting.
<PAGE>
Section 2.08 Secretary of Meetings . The Secretary of the Corporation shall
act as secretary of all meetings of the stockholders. In the absence of the
Secretary, the presiding officer of the meeting shall appoint any other person
to act as secretary of the meeting.
Section 2.09 Action in Lieu of Meeting . Any action required or permitted
to be taken at any annual or special meeting of the stockholders may be taken
without a meeting, without prior notice and without a vote, if consents in
writing, setting forth the action so taken, are signed by the holders of all
shares entitled to be voted thereon.
ARTICLE 3
BOARD OF DIRECTORS
Section 3.01 Powers . The business of the Corporation shall be managed
under the direction of the Board of Directors, which shall exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
law or by the Articles or by these By-laws directed or required to be exercised
or done by the stockholders.
Section 3.02 Number; Election; Qualification; Term .
(a) The Board of Directors shall consist of that number of members
determined by the Board of Directors, but in no event less than three. The term
of office of a Director shall not be affected by any decrease in the authorized
number of Directors.
(b) Until the first annual meeting of the stockholders, the Board of
Directors shall consist of the persons named as the Directors of the Corporation
by the incorporator in the Articles. At the first annual meeting and at each
subsequent annual meeting of the stockholders, the stockholders shall elect
Directors to serve until the next annual meeting, subject to the Articles and,
to the extent not inconsistent therewith, the notification procedures set forth
in Section 3.02(e) below. The number of Directors shall in no event be less than
three.
(c) Unless by the terms of the action pursuant to which he was elected any
special condition or conditions must be fulfilled in order for him to be
qualified, a person elected as a Director shall be deemed to be qualified (i)
upon his receipt of notice of election and his indication of acceptance thereof
or (ii) upon the expiration of ten days after notice of election is given to him
without his having given notice of inability or unwillingness to serve.
(d) The Directors shall be classified, with respect to the time for which
they severally hold office, into three (3) classes, as nearly equal in number as
possible. One class shall be originally elected for a term expiring at the
annual meeting of stockholders to be held in 1999. Another class shall be
originally elected for a term expiring at the annual meeting of stockholders to
be held in 2000. Another class shall be originally elected for a term expiring
at the annual meeting of stockholders to be held in 2001. Each class will hold
office until its successors are elected and qualified. Except as provided in the
Articles, at each annual meeting of the stockholders of the Corporation, the
successors of the class of directors whose terms expire at that meeting shall be
elected to hold office for a term expiring at the annual meeting of stockholders
held in the third year following the year of their election. Directors need not
be stockholders of the Corporation.
<PAGE>
(e) Only persons who are nominated in accordance with the following
procedures shall be eligible for election as directors of the Corporation,
except as may be otherwise provided in the Articles with respect to the right of
holders of preferred stock of the Corporation to nominate and elect a specified
number of directors in certain circumstances. Nominations of persons for
election to the Board of Directors may be made at any annual meeting of
stockholders, or at any special meeting of stockholders called for the purpose
of electing directors, (i) by or at the direction of the Board of Directors (or
any duly authorized committee thereof) or (ii) by any stockholder of the
Corporation (A) who is a stockholder of record on the date of the giving of the
notice provided for in this Section 3.02 and on the record date for the
determination of stockholders entitled to vote at such meeting and (B) who
complies with the applicable provisions of the Articles and, to the extent not
inconsistent therewith, the notice procedures set forth in this Section 3.02.
In addition to any other applicable requirements, for a nomination to be
made by a stockholder, such stockholder must have given timely notice thereof in
proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive office of the Corporation (a)
in the case of an annual meeting of stockholders, not less than sixty (60) days
nor more than ninety (90) days prior to the anniversary date of the immediately
preceding annual meeting of stockholders; provided, however, that in the event
that the annual meeting of stockholders is called for a date that is not within
thirty (30) days before or after such anniversary date, notice by the
stockholder in order to be timely must be so received not later than the close
of business on the tenth (10th) day following the day an which such notice of
the date of the annual meeting of stockholders was mailed or such public
disclosure of the date of the annual meeting of stockholders was made, whichever
first occurs; and (b) in the case of a special meeting of stockholders called
for the purpose of electing directors, not later than the close of business on
the tenth (10th) day following the day on which notice of the date of the
special meeting of stockholders was mailed or public disclosure of the date of
the special meeting of stockholders was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must
set forth (a) as to each person whom the stockholder proposes to nominate for
election as a director (i) the name, age, business address and residence address
of the person, (ii) the principal occupation or employment of the person, (iii)
the class or series and number of shares of capital stock of the Corporation
which are owned beneficially or of record by the person and (iv) any other
information relating to the person that would be required to be disclosed in a
proxy statement or other filings required to be made in connection with
solicitations of proxies for
<PAGE>
election of directors pursuant to Section 14 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations promulgated
thereunder; and (b) as to the stockholder giving the notice (i) the name and
record address of such stockholder, (ii) the class or series and number of
shares of capital stock of the Corporation which are owned beneficially or of
record by such stockholder, (iii) a description of all arrangements or
understandings between such stockholder and each proposed nominee and any other
person or persons (including their names) pursuant to which the nomination(s)
are to be made by such stockholder, (iv) a representation that such stockholder
intends to appear in person or by proxy at the meeting to nominate the persons
named in its notice and (v) any other information relating to such stockholder
that would be required to be disclosed in a Proxy statement or other filings
required to be made in connection with solicitations of proxies for election of
directors pursuant to Section 14 of the Exchange Act and the rules and
regulations promulgated thereunder. Such notice must be accompanied by a written
consent of each proposed nominee to being named as a nominee and to serve as a
director if elected.
No person shall be eligible for election as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Section
3.02. If the presiding officer of the meeting determines that a nomination was
not made in accordance with the foregoing procedures, the presiding officer
shall declare to the meeting that the nomination was defective and such
defective nomination shall be disregarded.
Section 3.03 Vacancies . Whenever between annual meetings of the
stockholders any vacancy exists in the Board of Directors by reason of death,
resignation, removal, or increase in the authorized number of Directors, or
otherwise, it shall be filled as provided in the Articles.
Section 3.04 Place of Meetings . Any meeting of the Board of Directors may
be held either within or without the State of Maryland.
Section 3.05 Annual Meeting . There shall be an annual meeting of the Board
of Directors for the election of officers and the transaction of such other
business as may be brought before the meeting. The annual meeting of the Board
shall be held immediately following the annual meeting of the stockholders or
any adjournment thereof, at the place where the annual meeting of the
stockholders was held or at such other place as a majority of the Directors who
are then present determine. If the annual meeting is not so held, it shall be
called and held in the manner provided herein for special meetings of the Board
or conducted pursuant to Section 3.11.
Section 3.06 Regular Meetings . Regular meetings of the Board of Directors,
other than the annual meeting, may be held without notice at such times and
places as the Board may have fixed by resolution.
Section 3.07 Special Meetings . Special meetings of the Board of Directors
may be called by the Chairman of the Board, the Chief Executive Officer or the
President and shall be called on the written request of any Director. Not less
than one day's notice of a special meeting shall be given by the Secretary to
each Director.
<PAGE>
Section 3.08 Organization . Every meeting of the Board of Directors shall
be presided over by the Chairman of the Board or in his absence by the Chief
Executive Officer. In the absence of the Chairman of the Board and the Chief
Executive Officer, the President shall preside at such meetings. In the absence
of the Chairman of the Board, the Chief Executive Officer and the President, a
presiding officer shall he chosen by a majority of the Directors present. The
Secretary of the Corporation shall act as secretary of the meeting. In his
absence the presiding officer shall appoint another person to act as secretary
of the meeting.
Section 3.09 Quorum . The presence of a majority or more of the number of
Directors fixed by Section 3.02(a) shall be necessary to constitute a quorum for
the transaction of business at a meeting of the Board of Directors. If less than
a quorum is present, a majority of the Directors present may from time to time
adjourn the meeting to another time or place until a quorum is present,
whereupon the meeting may be held, as adjourned, without further notice.
Section 3.10 Vote . The act of a majority of the Directors present at any
meeting at which there is a quorum shall be the act of the Board of Directors,
except as may be otherwise specifically provided by law, by the Articles, or by
these By-laws. Where a vote of the Directors present results in a tie, the
action proposed shall not constitute an act of the Board of Directors.
Section 3.11 Action in Lieu of a Meeting . Any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if the members of the Board or committee, as the
case may be, unanimously consent thereto in writing, and the writing or writings
are filed with the minutes of the proceedings of the Board or committee.
Section 3.12 Conference Call Meeting . Members of the Board of Directors or
of any committee thereof may participate in a meeting of the Board or committee,
as the case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
Section 3.13 Removal of Director . All Directors shall be subject to
removal in the manner provided in the Articles.
Section 3.14 Chairman of the Board . The Board of Directors may choose a
Chairman of the Board who shall, if present, preside at meetings of the Board
and of the stockholders. The Chairman of the Board may be an officer of the
Corporation elected pursuant to Article 5.
ARTICLE 4
COMMITTEES
<PAGE>
Section 4.01 Committees of the Board . The Board of Directors may, by
resolution passed by a majority of the Directors in office, establish one or
more committees, each committee to consist of one or more of the Directors. The
Board may designate one or more Directors as alternate members of any committee,
who may replace any absent or disqualified member or members at any meeting of
the committee. Any such committee, to the extent provided in the resolution of
the Board, shall have and may exercise all the power and authority of the Board
for direction and supervision of the management of the business and affairs of
the Corporation, and may authorize the seal of the Corporation to be affixed to
all papers that may require it. No such committee, however, shall have power or
authority in reference to (i) amending the Articles or these By-laws; (ii)
approving any merger or share exchange which does not require stockholder
approval; (iii) recommending to the stockholders any action which requires
stockholder approval; (iv) declaring a dividend or a distribution with respect
to stock; and (v) issuing any stock other than as permitted by Section 2-411(b)
of the MGCL.
Section 4.02 Procedures; Minutes of Meetings . Each committee shall
determine its rules with respect to notice, quorum, voting, and the taking of
action, provided that such rules shall be consistent with law, the rules in
these By-laws applicable to the Board of Directors, and the resolution of the
Board establishing the committee. Each committee shall keep regular minutes of
its meetings and report the same to the Board of Directors when required.
ARTICLE 5
OFFICERS
Section 5.01 General . The Board of Directors shall elect the officers of
the Corporation, which shall include the Chairman of the Board, the Chief
Executive Officer, a President, a Treasurer and a Secretary and such other
officers as in the Board's opinion are desirable for the conduct of the business
of the Corporation. Any two or more offices may be held by the same person
except that the President, if there shall be more than one officer, shall not
also hold the office of Vice-President or Secretary.
Section 5.02 Powers and Duties . Each of the officers of the Corporation
shall, unless otherwise ordered by the Board of Directors, have such powers and
duties as generally pertain to his respective office as well as such powers and
duties as from time to time may be conferred upon him by the Board.
Section 5.03 Term of Office; Removal and Vacancy . Each officer shall hold
his office until his successor is elected and qualified or until his earlier
resignation or removal and shall be subject to removal with or without cause at
any time by the affirmative vote of a majority of the Directors in office. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors.
Section 5.04 Chairman of the Board . The Chairman of the Board shall
supervise and direct the Chief Executive Officer and the President, subject to
the control of the Board of Directors. He shall preside at all meetings of the
stockholders and of the Board
<PAGE>
of Directors. He may sign, with the secretary or any other proper officer of the
Corporation authorized by the Board of Directors, certificates for shares of the
Corporation, and deeds, mortgages, bonds, contracts, or other instruments which
the Board of Directors has authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the Board of
Directors or by those By-laws to some other officer or agent of the Corporation,
or shall be required by law to be otherwise signed or executed; and in general
shall perform all duties incident to the office of Chairman of the Board and
such other duties as may be prescribed by the Board of Directors from time to
time.
Section 5.05 Chief Executive Officer . The Chief Executive Officer shall be
the principal executive officer of the Corporation and, subject to the control
of the Board of Directors, shall in general supervise the business and affairs
of the Corporation. He shall, in the absence of the Chairman of the Board,
preside at all meetings of the stockholders and the Board of Directors. He may
sign, with the secretary or any other proper officer of the Corporation
authorized by the Board of Directors, certificates for shares of the Corporation
(as a supernumerary) and deeds, mortgages, bonds, contracts, or other
instruments which the Board of Directors has authorized to be executed, except
in cases where the signing and execution thereof shall be expressly delegated by
the Board of Directors or by those By-laws to some other officer or agent of the
Corporation, or shall be required by law to be otherwise signed or executed; and
in general shall perform all duties incident to the office of Chief Executive
Officer and such other duties as may be prescribed by the Board of Directors
from time to time.
Section 5.06 President . The President shall be the principal operating
officer of the Corporation and, subject to the control of the Board of
Directors, shall in general supervise the business operations of the
Corporation. He shall, in the absence of the Chairman of the Board and the Chief
Executive Officer, preside at all meetings of the stockholders and of the Board
of Directors. He may sign, with the secretary or any other proper officer of the
Corporation authorized by the Board of Directors, certificates for shares of the
Corporation and deeds, mortgages, bonds, contracts, or other instruments which
the Board of Directors has authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the Board of
Directors or by those By-laws to some other officer or agent of the Corporation,
or shall be required by law to be otherwise signed or executed; and in general
shall perform all duties incident to the office of President and such other
duties as may be prescribed by the Board of Directors from time to time.
Section 5.07 Secretary . The Secretary shall: (a) keep the minutes of the
proceedings of the stockholders and of the Board of Directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these By-laws or as required by law; (c) be
custodian of the corporate records and of any seal of the Corporation and if
there is a seal of the Corporation, see that it is affixed to all documents the
execution of which on behalf of the Corporation under its seal is duly
authorized; (d) when requested or required, authenticate any records of the
Corporation; (e) keep a register of the post office address of each stockholder
which shall be furnished to the secretary by such stockholder; (f) sign with the
President, a
<PAGE>
Vice-President or the Chairman of the Board, certificates for shares of the
Corporation, the issuance of which shall have been authorized by resolution of
the Board of Directors; (g) have general charge of the stock transfer books of
the Corporation; and (h) in general perform all duties incident to the office of
secretary and such other duties as from time to time may be assigned to him by
the President or by the Board of Directors.
Section 5.08 Treasurer . The Treasurer shall: (a) have charge and custody
of and be responsible for all funds and securities of the Corporation; (b)
receive and give receipts for moneys due and payable to the Corporation from any
source whatsoever, and deposit all such moneys in the name of the Corporation in
such banks, trust companies, or other depositaries as shall be selected by the
Board of Directors; (c) in general, perform all of the duties incident to the
office of treasurer and such other duties as from time to time may be assigned
to him by the President or by the Board of Directors; and (d) sign with the
President, a Vice-President or the Chairman of the Board certificates for shares
of the Corporation, the issuance of which shall have been authorized by
resolution of the Board of Directors. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his duties in such sum
and with such surety or sureties as the Board of Directors shall determine.
ARTICLE 6
CAPITAL STOCK
Section 6.01 Certificates of Stock . Certificates for shares of capital
stock of the Corporation shall be in such form as the Board of Directors may
from time to time prescribe and shall be signed by the President, a
Vice-President or the Chairman of the Board and countersigned by the Secretary,
the Treasurer, an Assistant Secretary or an Assistant Treasurer. The Chief
Executive Officer may also sign certificates for shares of capital stock of the
Corporation as a supernumerary. Any or each of the signatures on a stock
certificate, including that of any transfer agent or registrar, may be a
facsimile. If any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate has ceased to be such
officer, transfer agent, or registrar before the certificate is issued, the
certificate may be issued by the Corporation with the same effect as if the
officer, transfer agent, or registrar were the officer, transfer agent, or
registrar at the date of issuance.
Section 6.02 Transfer of Stock . Shares of stock of the Corporation shall
be transferable on the books of the Corporation only by the holder of record
thereof, in person or by duly authorized attorney, upon surrender and
cancellation of a certificate or certificates for a like number of shares, with
an assignment or power of transfer endorsed thereon or delivered therewith, duly
executed, and with such proof of the authenticity of the signature and of
authority to transfer, and of payment of transfer taxes, as the Corporation or
its agents may require.
Section 6.03 Ownership of Stock . The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the owner thereof
in fact and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it has express or other notice thereof, except as otherwise expressly provided
by law.
<PAGE>
Section 6.04 Lost, Stolen, or Destroyed Certificates . In case any
certificate for stock of the Corporation is lost, stolen, or destroyed, the
Corporation may require such proof of the fact and such indemnity to be given to
it, to its transfer agent, or to its registrar, if any, as deemed necessary or
advisable by it.
ARTICLE 7
MISCELLANEOUS
Section 7.01 Corporate Seal . The seal of the Corporation shall be circular
in form and shall contain the name of the Corporation and the word "Maryland".
Section 7.02 Fiscal Year . The Board of Directors shall have power to fix,
and from time to time to change, the fiscal year of the Corporation.
ARTICLE 8
INDEMNIFICATION; TRANSACTIONSWITH INTERESTED PERSONS
Section 8.01 Indemnification . The Corporation shall indemnify, to the
fullest extent permitted by Maryland law, as applicable from time to time, all
persons who at any time were or are directors cr officers of the Corporation for
any threatened, pending or completed action, suit or proceeding (whether civil,
criminal, administrative or investigative) relating to any action alleged to
have been taken or omitted in such capacity as a director or an officer. The
Corporation shall pay or reimburse all reasonable expenses incurred by a present
or former director or officer of the Corporation in connection with any
threatened, pending or completed action, suit or proceeding whether civil,
criminal, administrative or investigative) in which the present or former
director or officer is a party, in advance of the final disposition of the
proceeding, to the fullest extent permitted by, and in accordance with the
applicable requirements of, Maryland law, as applicable from time to time. The
Corporation may indemnify any other persons permitted but not required to be
indemnified by Maryland law, as applicable from time to time, if and to the
extent indemnification is authorized and determined to be appropriate, in each
case in accordance with applicable law, by the Board of Directors, the majority
of the stockholders of the Corporation entitled to vote thereon or special legal
counsel appointed by the Board of Directors. No amendment of these By-laws of
the Corporation or repeal of any of its provisions shall limit or eliminate any
of the benefits provided to directors and officers under this Section 8.01 in
respect of any act or omission that occurred prior to such amendment or repeal.
Section 8.02 Transactions With Interested Persons . No contract or
transaction between the Corporation and any of its Directors or officers, or
between the Corporation and any other corporation, partnership, association, or
other organization in which any of its Directors or officers is a director or
officer or has a financial interest, shall be void or voidable solely for that
reason, or
<PAGE>
solely because the Director or officer is present at or participates in the
meeting of the Board of Directors or committee thereof at which the contract or
transaction is authorized or solely because his vote is counted for such
purpose, if:
(a) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board of Directors or committee in good faith approves or
ratifies the contract or transaction by the affirmative vote of a majority of
the disinterested Directors, even though the disinterested Directors are less
than a quorum;
(b) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by a majority of the votes cast by such stockholders other than the
votes of shares owned of record or beneficially by the interested Director,
officer, corporation, firm or other activity; or
(c) the contract or transaction is fair and reasonable as to the
Corporation as of the time it is authorized, approved, or ratified by the Board
of Directors, a committee thereof, or the stockholders entitled to vote thereon.
ARTICLE 9
NOTICES
Section 9.01 Notice . Whenever notice is required or permitted by these
By-laws to be given to any person, it may be either (a) oral and communicated in
person, by telephone, or by radio, television, or other form of voice
communication, effective upon receipt by the person, or (b) in writing and
communicated by being delivered by hand, by mail, or by telegraph, teletype, or
other form of record communication, effective upon receipt by the person or, if
earlier, upon delivery at his address as registered in the records of the
Corporation for purposes of notice-giving ("notice address"); provided that (i)
notice of a meeting of the stockholders shall be in writing, and (ii) a written
notice, if mailed postpaid and correctly addressed to a person at his notice
address, shall be effective three business days after its deposit by the sender
in the United States mail.
Section 9.02 Waiver . Whenever any notice is required to be given under the
provisions of law or of the Articles or of these By-laws, a waiver thereof in
writing, signed by the person or persons entitled to the notice, whether before
or after the time stated therein, shall be deemed equivalent thereto. Attendance
at a meeting for which notice is required shall be deemed waiver of such notice
unless such attendance is for the purpose of objecting, at the beginning of the
meeting, to the transaction of business on the ground that the meeting is not
lawfully called or convened.
<PAGE>
ARTICLE 10
AMENDMENT
These By-laws may be amended or repealed, or new By-laws may be adopted, by
the stockholders at any meeting of the stockholders by the affirmative vote of
the holders of a majority of the voting power of all the shares of capital stock
of the Corporation entitled to vote generally in the election of Directors,
voting together as a class or pursuant to Section 2.09 of these By-laws, or by
the Board of Directors at any meeting of the Board of Directors or pursuant to
Section 3.11 of these By-laws; provided that the stockholders and the Board of
Directors may not amend or repeal (i) this Article 10, Sections 3.02(d) or 3.13
except by the affirmative vote of two-thirds of the aggregate number of votes
then entitled to be cast generally in the election of Directors and (ii) any
part of these By-laws that has been adopted by the stockholders except by vote
of the holders of a majority of the aggregate number of votes then entitled to
be cast thereon.
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>
Three Months Ended March 31
-------------------------------------------
1999 1998
-------------------- --------------------
<S> <C> <C>
Income before minority interests $ 9,298 $ 7,451
Interest incurred 22,008 9,693
Amortization of capitalized interest 121 94
Amortization of debt issuance costs 593 167
Amortization of interest rate protection contracts 57 342
Less interest earned on interest rate protection contracts - (23)
Less capitalized interest (1,074) (1,388)
-------- --------
Earnings 31,003 16,336
-------- --------
Interest incurred 22,008 9,693
Amortization of debt issuance costs 593 167
Amortization of interest rate protection contracts 57 342
Preferred stock distributions and dividends 6,955 4,166
--------- --------
Combined Fixed Charges and
Preferred Stock Distributions and Dividends 29,613 14,368
--------- --------
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Distributions and Dividends 1.05 x 1.14 x
========= ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> Mar-31-1999
<EXCHANGE-RATE> 1
<CASH> 330
<SECURITIES> 0
<RECEIVABLES> 24,758
<ALLOWANCES> 5,565
<INVENTORY> 0
<CURRENT-ASSETS> 86,569
<PP&E> 2,031,455
<DEPRECIATION> 145,556
<TOTAL-ASSETS> 1,972,468
<CURRENT-LIABILITIES> 93,027
<BONDS> 1,265,494
0
101
<COMMON> 430
<OTHER-SE> 588,064
<TOTAL-LIABILITY-AND-EQUITY> 1,972,468
<SALES> 0
<TOTAL-REVENUES> 78,584
<CGS> 0
<TOTAL-COSTS> 69,286
<OTHER-EXPENSES> 2,392
<LOSS-PROVISION> 1,054
<INTEREST-EXPENSE> 21,262
<INCOME-PRETAX> 9,298
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,298
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,298
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.06
</TABLE>
