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September 20, 2000
VIA FACSIMILE
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Board of Directors of
Prime Retail, L.P.
c/o Glenn D. Reschke
Chief Executive Officer
Prime Retail, Inc.
100 Each Pratt Street
19th Floor
Baltimore, MD 21202
Re: PROPOSED PRT RECAPITALIZATION
Ladies and Gentlemen:
The purpose of this letter is to outline the material terms and
conditions of a proposed financial transaction between Prime Retail, L.P.
("PRT") and a to-be-formed joint venture between The Prime Group, Inc. and
Craig Realty Group (the "Venture"). The proposed transaction should provide
sufficient capital to PRT to (a) retire all short-term indebtedness that is
in current default, (b) pay all of its outstanding accounts payable
and other short-term obligations, and (c) pay all accrued and unpaid
dividends on its Series A and Series B preferred stock. The proposed
transaction also reduces the overall leverage of the company by over $280.0
million and improves key financial ratios to ensure compliance with the
covenants in the Greenwich debt facility. Furthermore, the reinstatement of
the preferred dividend should have a beneficial impact on the market value of
the company's preferred and common stock.
Our proposal consists of the purchase of five properties from PRT
(Gilroy, Kittery, Michigan City, Waterloo and Puerto Rico, including the
expansion land) for $280.0 million, which consists of $105.0 million in cash
plus the assumption of the existing first mortgage in the principal amount of
$175.0 million. The purchase of assets will be subject to:
(a) a thirty day due diligence period, to commence upon PRT board
approval of this proposal;
(b) execution of definitive documentation;
(c) consent of the first mortgage to the transfer of the properties
to the Venture;
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Board of Directors, Prime Retail, L.P.
Re: Proposed PRT Recapitalization
September 20, 2000
Page 2
(d) conveyance of fee simple title, subject only to liens and
encumbrances acceptable to the Venture; and
(e) receipt of tenant estoppel letters, in form and substance
reasonably acceptable to the Venture, from tenants representing
no less that 75% of the total gross rent from the properties;
(f) at closing, PRT will credit the Venture for any remaining unpaid and
unfunded construction costs (Phase I base building and tenant finish
allowances for 95% occupancy) at the Puerto Rico project; and
(g) receipt of 5,000,000 warrants to purchase PRT common stock at $1.50
per share (outstanding for a three-year term).
Upon completion of the foregoing transaction, we estimate that PRT will
have the following sources and uses of capital:
<TABLE>
<CAPTION>
Sources (000's)
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<S> <C>
Sale of Four Outlet Centers (net of debt) $ 65,000
Sale of Hagerstown (net) 18,500
Sale of Puerto Rico 40,000
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Total sources $123,500
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Uses
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Repay Mercantile Line of Credit $ 25,000
Repay FBR Asset Loan 20,000
Repay Nomura Line of Credit 37,000
Accounts Payable Clean-up 10,000
Purchase Gilroy Land Lease 6,800
Paydown on Bellport First Mortgage 3,000
Costs and Closing Prorations 1,000
Marketing Subsidy 3,000
Unpaid Preferred Dividends 17,000
Excess Cash 700
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Total Uses $123,500
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</TABLE>
In the first year after closing, we estimate that PRT would have $69.6
million of funds from operations ("FFO"), increasing to $75.6 million in the
second year, and $50.6 million of cash available for distribution ("CAD"),
increasing to $55.8 million in the second year. See Exhibit A attached
hereto. This equates to FFO per diluted share of $.87, increasing to $1.01 in
the second year, and CAD per
<PAGE>
Board of Directors, Prime Retail, L.P.
Re: Proposed PRT Recapitalization
September 20, 2000
Page 3
diluted share of $.51, increasing to $.61 in the second year.
Our Venture is prepared to meet with your board, and its financial
advisors and legal representatives, to further discuss this proposal and to
respond to any questions. Funding for this transaction is being provided by
our respective companies and by GMAC Commercial Mortgage Corporation, a
subsidiary of General Motors Acceptance Corporation ("GMAC").
In consideration of the Venture's obligations hereunder, PRT shall grant
the Venture a ninety-day exclusive right to undertake due diligence on the
company and to negotiate the terms and conditions of a "friendly" tender offer
to acquire no less than a majority interest in PRT, subject to terms and
conditions to be approved by the board of PRT. The Venture, and any entity or
person participating with the Venture, will agree to execute customary
confidentiality and standstill agreements with PRT. The outcome of such
negotiations shall in no way affect the obligations of the Venture to
purchase, nor PRT to sell, the five properties.
This proposal is subject to strict confidentiality until the Venture
completes its due diligence on the transaction. Upon completion of due
diligence, the Venture will fund into escrow a $3.0 million earnest money
deposit, refundable only in the event of a failure of any closing conditions.
We propose to close the transaction within five business days after
satisfaction of all closing conditions. This proposal will remain in effect
until the close of business on Friday, September 29, 2000.
We believe that the proposal set forth herein is in the best interests
of the preferred and common shareholders of PRT and, therefore, we
respectfully request the support of this proposal from the PRT board of
directors.
Respectfully Submitted,
Craig Realty Group The Prime Group, Inc.
By: /s/ Steven L. Craig By: /s/ Michael W. Reschke
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Its: President Its: CEO
Attachments
MWR/cgb
