United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q/A
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarterly Period Ended September 30, 2000
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
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PRIME RETAIL, INC.
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(Exact name of registrant as specified in its charter)
Maryland 38-2559212
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 East Pratt Street
Nineteenth Floor
Baltimore, Maryland 21202
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(Address of principal executive offices) (Zip Code)
(410) 234-0782
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name,former address, or former fiscal year,if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ___ No _X_
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
As of November 14, 2000, the issuer had outstanding 43,577,916 shares of Common
Stock, $.01 par value per share.
<PAGE>
Prime Retail, Inc.
Form 10-Q/A
INDEX
PART I: FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 2000 and
December 31, 1999 ................................................... 1
Consolidated Statements of Operations for the three and
nine months ended September 30, 2000 and 1999........................ 2
Consolidated Statements of Cash Flows for the nine
months ended September 30, 2000 and 1999............................. 3
Notes to the Consolidated Financial Statements........................ 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 13
PART II: OTHER INFORMATION
Item 1. Legal Proceedings............................................. 34
Item 2. Changes in Securities......................................... 34
Item 3. Defaults Upon Senior Securities............................... 35
Item 4. Submission of Matters to a Vote of Security Holders........... 36
Item 5. Other Information............................................. 36
Item 6. Exhibits or Reports on Form 8-K............................... 36
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.... 37
Signatures............................................................. 38
<PAGE>
<TABLE>
<CAPTION>
PRIME RETAIL, INC.
Consolidated Balance Sheets
(Amounts in thousands, except share information)
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September 30, 2000 December 31, 1999
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<S> <C> <C>
Assets
Investment in rental property:
Land $ 192,707 $ 181,854
Buildings and improvements.................................................. 1,660,379 1,560,710
Property under development.................................................. 20,814 66,581
Furniture and equipment..................................................... 15,447 17,406
---------- ----------
1,889,347 1,826,551
Accumulated depreciation.................................................... (232,111) (183,954)
---------- ----------
1,657,236 1,642,597
Cash and cash equivalents...................................................... 5,987 7,343
Restricted cash................................................................ 25,500 28,131
Accounts receivable, net....................................................... 16,575 18,926
Deferred charges, net.......................................................... 11,307 13,503
Assets held for sale........................................................... 6,640 97,639
Due from affiliates, net....................................................... 3,109 4,140
Investment in partnerships..................................................... 21,384 18,941
Other assets................................................................... 23,789 24,838
---------- ----------
Total assets.......................................................... $1,771,527 $1,856,058
========== ==========
Liabilities and Shareholders' Equity
Bonds payable.................................................................. $ 32,900 $ 32,900
Notes payable (See Note 4)..................................................... 1,181,625 1,227,770
Accrued interest............................................................... 6,969 8,033
Real estate taxes payable...................................................... 12,299 10,700
Construction costs payable..................................................... 4,189 5,123
Accounts payable and other liabilities......................................... 66,169 73,340
---------- ---------
Total liabilities..................................................... 1,304,151 1,357,866
Minority interests............................................................. 1,498 1,505
Shareholders' equity:
Shares of preferred stock, 24,315,000 shares authorized:
10.5% Series A Senior Cumulative Preferred Stock, $.01 par value
(liquidation preference of $62,783), 2,300,000 shares issued and
outstanding. 23 23
8.5% Series B Cumulative Participating Convertible
Preferred Stock, $.01 par
value (liquidation preference of $210,259), 7,828,125 shares issued
and outstanding........................................................ 78 78
Shares of common stock, 150,000,000 shares authorized:
Common stock, $.01 par value, 43,577,916 and 43,368,620 shares issued and
outstanding, respectively.............................................. 436 434
Additional paid-in capital.................................................. 709,373 709,122
Distributions in excess of net income....................................... (244,032) (212,970)
---------- ----------
Total shareholders' equity............................................ 465,878 496,687
---------- ----------
Total liabilities and shareholders' equity............................ $1,771,527 $1,856,058
========== ==========
===================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Prime Retail, Inc.
Consolidated Statements of Operations
(in thousands, except per share information)
<TABLE>
<CAPTION>
Three months Nine months
ended September 30 ended September 30
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2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenues
Base rents....................................................... $ 46,133 $49,178 $134,842 $146,836
Percentage rents................................................. 1,754 1,956 4,347 5,996
Tenant reimbursements............................................ 21,232 22,144 63,612 68,441
Interest and other............................................... 2,289 3,624 10,032 9,546
-------- ------- -------- --------
Total revenues................................................ 71,408 76,902 212,833 230,819
Expenses
Property operating............................................... 17,204 17,781 50,694 53,918
Real estate taxes................................................ 5,575 5,753 16,813 17,046
Depreciation and amortization.................................... 17,679 19,344 49,699 56,168
Corporate general and administrative............................. 4,067 2,189 17,519 7,776
Interest......................................................... 25,430 24,289 73,167 68,014
Provision for asset impairment................................... - - 8,538 -
Loss on eOutlets.com............................................. 424 - 14,703 -
Loss (gain) on Designer Connection............................... (274) 119 1,811 1,007
Other charges.................................................... 5,654 975 11,686 3,463
-------- ------- --------- --------
Total expenses................................................ 75,759 70,450 244,630 207,392
-------- ------- --------- --------
Income (loss) before minority interests and
extraordinary loss........................................... (4,351) 6,452 (31,797) 23,427
(Income) loss allocated to minority interests................... 767 78 735 (456)
-------- ------- --------- --------
Income (loss) before extraordinary loss......................... (3,584) 6,530 (31,062) 22,971
Extraordinary loss on early extinguishment of debt,
net of minority interests of $534............................ - - - (2,106)
-------- ------- --------- --------
Net income (loss)............................................... (3,584) 6,530 (31,062) 20,865
Income allocated to preferred shareholders...................... (5,668) (6,048) (17,004) (4,294)
-------- ------- --------- -------
Net income (loss) applicable to common shares................... $(9,252) $ 6,934 $ (48,066) $ 16,571
======== ======= ========= ========
Basic earnings per common share:
Income (loss) before extraordinary loss...................... $ (0.21) $ 0.01 $ (1.11) $ 0.43
Extraordinary loss........................................... - - - (0.05)
-------- ------- --------- --------
Net income (loss)............................................ $ (0.21) $ 0.01 $ (1.11) $ 0.38
======== ======= ========= ========
Diluted earnings per common share:
Income (loss) before extraordinary loss...................... $ (0.21) $ 0.01 $ (1.11) $ 0.10
Extraordinary loss........................................... - - - (0.04)
-------- ------- --------- --------
Net income (loss)............................................ $ (0.21) $ 0.01 $ (1.11) $ 0.06
======== ======= ========= ========
Weighted-average common shares outstanding:
Basic........................................................ 43,578 43,286 43,497 43,142
======== ======= ========= ========
Diluted...................................................... 43,578 43,286 43,497 55,557
======== ======= ========= ========
Distributions declared per common share......................... $ - $ 0.295 $ - $ 0.885
======== ======= ========= ========
====================================================================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PRIME RETAIL, INC.
Consolidated Statements of Cash Flows
(Amounts in thousands)
<TABLE>
<CAPTION>
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Nine months ended September 30, 2000 1999
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<S> <C> <C>
Operating Activities
Net income (loss)............................................................... $(31,062) $ 20,865
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Income (loss) allocated to minority interests................................ 735 (78)
Depreciation................................................................. 49,225 55,567
Amortization of deferred financing costs and interest rate protection
contracts................................................................... 2,564 2,427
Amortization of leasing commissions.......................................... 474 601
Provision for uncollectible accounts receivable.............................. 5,095 1,396
Provision for asset impairment............................................... 8,538 -
Loss on eOutlets.com......................................................... 14,703 -
Loss on Designer Connection.................................................. 1,811 1,007
Gain on sale of land......................................................... (2,472) -
Changes in operating assets and liabilities:
Increase in accounts receivable.............................................. (4,343) (5,125)
(Increase) decrease in other assets.......................................... 4,153 (4,093)
Increase (decrease) in other liabilities..................................... 744 (24)
Increase in accrued interest................................................. 336 4,594
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Net cash provided by operating activities................................. 50,501 77,137
------ ------
Investing Activities
Additions to investment in rental property...................................... (42,828) (56,166)
Payments made for eOutlets.com.................................................. (10,227) (1,765)
Proceeds from sale of land...................................................... 4,622 -
Proceeds from sale of outlet center............................................. 11,063 -
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Net cash used in investing activities..................................... (37,370) (57,931)
------- -------
Financing Activities
Proceeds from notes payable..................................................... 13,039 190,684
Principal repayments on notes payable........................................... (26,684) (95,709)
Deferred financing fees......................................................... (842) (4,696)
Series C preferred stock redemption............................................. - (45,054)
Distributions and dividends paid................................................ - (57,100)
Distributions to minority interests............................................. - (9,712)
------- -------
Net cash used in financing activities..................................... (14,487) (21,587)
------- -------
Decrease in cash and cash equivalents........................................... (1,356) (2,381)
Cash and cash equivalents at beginning of period................................ 7,343 5,765
------- -------
Cash and cash equivalents at end of period...................................... $ 5,987 $ 3,384
======= =======
====================================================================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PRIME RETAIL, INC.
Consolidated Statements of Cash Flows (continued)
(Amounts in thousands)
Supplemental Disclosure of Noncash Investing and Financing Activities:
The following assets and liabilities were sold in connection with the sale of
Prime Outlets at Williamsburg on February 23, 2000:
Book value of assets disposed, net......................... $ 53,563
Cash received.............................................. (11,063)
Promissory note received................................... (10,000)
-------
Debt disposed.............................................. $ 32,500
========
Redemption of 3,300,000 shares of Series C Preferred Stock in exchange for
issuance of note payable on March 31, 1999.................... $ 33,000
========
================================================================================
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, 1999.
Unless the context requires otherwise, all references to the Company herein mean
Prime Retail, Inc. and those entities owned or controlled by Prime Retail, Inc.,
including Prime Retail, L.P. (the "Operating Partnership"). The consolidated
financial statements include the accounts of the Company, the Operating
Partnership and the partnerships in which the Company has operational control.
Profits and losses are allocated in accordance with the terms of the agreement
of limited partnership of the Operating Partnership. Investments in partnerships
in which the Company does not have operational control are accounted for under
the equity method of accounting. Income (loss) applicable to minority interests
and common shares as presented in the consolidated statements of operations is
allocated based on income (loss) before minority interests after income
allocated to preferred shareholders.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Significant intercompany accounts and transactions have been eliminated in
consolidation. Certain prior period financial information has been reclassified
to conform with the current period presentation.
Note 2 -- Recently Issued Accounting Standards
In June 2000, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," which amends SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133 was
previously amended by SFAS 137 "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement 133,"
which deferred the effective date of SFAS 133 to fiscal years beginning after
June 15, 2000. The Company expects to adopt SFAS 138 and SFAS 133 effective
January 1, 2001. SFAS 133 and SFAS 138 will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be recognized
immediately in earnings. The Company does not anticipate a material impact on
its results of operations and financial position.
In December 1999, the Securities and Exchange Commission (the "Commission")
issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements." SAB 101 summarizes certain of the Commission's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. In June 2000, the Commission issued SAB 101B to defer the
effective date of implementation of SAB 101 to the fourth quarter of 2000. The
Company does not anticipate a material impact on its results of operations and
financial position.
Note 3 -- Earnings Per Share
Basic earnings per share ("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) shares of Series B Convertible Preferred Stock were converted into
shares of Common Stock. For the three and nine months ended September 30, 2000
and the three months ended September 30, 1999, the effect of all exercises and
conversions was anti-dilutive and, therefore, dilutive EPS is equivalent to
basic EPS. For the nine months ended September 30, 1999, (i) a redemption
discount and dividends aggregating $13,647 related to the Company's repurchase
of its Series C Preferred Stock and income allocated to Common Unitholders of
$534 were excluded from the numerator and (ii) incremental shares of 12,415 were
included in the denominator, related to the assumed conversion of Series C
Preferred Stock and Common Units, of the computation of diluted EPS. For the
nine months ended September 30, 1999, the effect of all other exercises and
conversions was anti-dilutive, and, therefore, was excluded from the computation
of diluted EPS.
Note 4 -- Notes Payable
The maturity of the Company's $25,000 line of credit was extended from August
30, 2000 to December 31, 2000. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Debt Financing Transaction and
Debt Facility Compliance" for additional information.
The Company is in default of a $20,000 subordinated loan (the "$20,000
Subordinated Loan") that matured on August 14, 2000. The Company has been
advised by the lender that the loan is due and payable and interest on the loan
will accrue at the default rate until the loan is repaid.
The Company's $3,540 first mortgage, collateralized by property in Knoxville,
TN, matured on October 31, 2000. The Company and the holder of the mortgage loan
have entered into a non-binding letter agreement which provides that, upon
satisfaction of certain underwriting guidelines by the lender and completion of
its due diligence, the lender would consider extending the loan to October 31,
2001. Although the Company and the lender are currently working to finalize this
extension, there can be no assurance that such an extension will be achieved.
The Company exercised its option to extend the maturity of a $19,633 first
mortgage, collateralized by property in Lebanon, TN, from December 31, 2000 to
December 31, 2001. The holder of the first mortgage has rejected the Company's
extension based on certain cross-default provisions in the loan documents.
Although the Company has taken the position that the Company's extension is
effective, there can be no assurances that its position would be upheld in a
court of law.
These loan maturities raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustment to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
The Company has announced that it has agreed in principle with a third party
(the "Mezzanine Lender") to obtain up to $71,000 in mezzanine financing (the
"Mezzanine Financing"). The Mezzanine Financing will be secured by pledges of
equity interests in certain outlet centers. As part of the transaction, the
Company has agreed in principle to sell to the Mezzanine Lender four of its
outlet centers, with the net proceeds from the sale expected to be approximately
$54,000. The Company is in discussions with various lenders regarding a first
mortgage loan for the Company's outlet center located in Puerto Rico in the
amount of $25,000 or more, which loan must close simultaneously with the
Mezzanine Financing to be provided by, and the sale of four outlet centers to,
the Mezzanine Lender. The Mezzanine Financing to be provided by the Mezzanine
Lender and the sale of the four outlet centers to the Mezzanine Lender, along
with the first mortgage loan for the Company's outlet center in Puerto Rico, are
collectively referred to herein as the "Debt Financing Transaction". See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Debt Financing Transaction and Debt Facility Compliance" for
additional information.
The proceeds from the Debt Financing Transaction will be used to pay off up to
$117,000 of short-term debt, including some of the debt described above, with
the remainder to be used for general corporate purposes. There can be no
assurance as to whether or when the Debt Financing Transaction will close.
Debt Contingencies
As of September 30, 2000, the Company is a guarantor or otherwise obligated with
respect to an aggregate of $12,545 of the indebtedness of Horizon Group
Properties, Inc. and its affiliates ("HGP") including a $10,000 obligation under
HGP's secured credit facility which bears a rate of interest of LIBOR plus
1.90%, matures in July 2001, and is collateralized by seven properties located
throughout the United States.
On April 1, 1998, Horizon Group, Inc. ("Horizon") consummated an agreement with
Castle & Cooke Properties, Inc. which released Horizon from its future
obligations under its long-term lease of the Dole Cannery outlet center in
Honolulu, Hawaii, in connection with the formation of a joint venture with
certain affiliates of Castle & Cooke, Inc. ("Castle & Cooke") to operate such
property. Under the terms of the agreement, Castle & Cooke Properties, Inc., the
landlord of the project and an affiliate of Castle & Cooke, released Horizon
from any continuing obligations under the lease, which expires in 2045, in
exchange for Horizon's conveyance to the joint venture of its rights and
obligations under such lease. The agreement also provided that Horizon transfer
to such joint venture substantially all of Horizon's economic interest in its
outlet center in Lake Elsinore, California together with legal title to vacant
property located adjacent to the center. Prior to August 15, 2000 the Company
held a small minority interest in the joint venture but had no obligation or
commitment with respect to the post-closing operations of the Dole Cannery
project. Mortgage indebtedness with an outstanding balance of $28,837 at
September 30, 2000, for which one of the Company's subsidiary partnerships
remains legally responsible, is collateralized by a first mortgage on the Lake
Elsinore outlet center. The joint venture, as a limited partner in such
subsidiary partnership, is obligated to make capital contributions to the
partnership to pay debt financing, operating and other expenses under certain
conditions. The subsidiary partnership will remain legally responsible for such
expenses in case of any shortfalls by the joint venture with respect to such
capital contributions. Castle & Cooke has provided the Company with an
unconditional guaranty with respect to any such shortfalls.
Debt Facility Compliance
As a result of its financial results for the quarters ended December 31, 1999,
March 31, 2000, June 30, 2000 and September 30, 2000, the Company is not in
compliance with financial covenants contained in certain credit facilities.
Non-compliance with these covenants as well as the Company's default with
respect to the $20,000 Subordinated Loan and other loan facilities has triggered
cross-default provisions with respect to several other debt facilities. None of
these loans has been accelerated nor has notice of any lender's intention to
accelerate been received by the Company. The Company is in discussions with the
affected lenders regarding either paying off these loans in their entirety using
proceeds from the Debt Financing Transaction, or modifying the terms and
financial covenants so that the Company will be in compliance at the time the
Debt Financing Transaction closes.
If the Company is unable to close the Debt Financing Transaction, it will look
to obtain alternative financing from other financial institutions or the
potential sale of certain properties as sources of cash to repay the amounts
outstanding under such loans. This condition also raises substantial doubt about
the Company's ability to continue as a going concern. The financial statements
do not include any adjustment to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
Although the Company continues to maintain its regularly scheduled interest
payments under all of its indebtedness, there can be no assurance that one or
all of the affected lenders will not attempt to accelerate the maturity of its
indebtedness or pursue other remedies under their respective loan documents.
Additionally, there can be no assurance that the Company will be in compliance
with its financial debt covenants in future periods since the Company's future
financial performance is subject to various risks and uncertainties, including
but not limited to, the effects of increases in market interest rates from
current levels, the risk of potential increases in vacancy rates and the
resulting impact on the Company's revenue, and risks associated with refinancing
the Company's current debt obligations or obtaining new financing under terms as
favorable as the Company has experienced in prior periods.
The Company, through affiliates, holds 50% interests in the owners of (i) an
outlet center in Oxnard, CA, (ii) an outlet center in New River, AZ and (iii)
phase one of an outlet center in Bellport, NY. First mortgage loans on these
three properties have matured and are currently in default. To date, the holders
of the first mortgage loans on these properties have been unwilling to extend
the loans on terms acceptable to the Company. The holder of the first mortgage
loan on Phase I of the Bellport project has commenced an action in the Supreme
Court of the State of New York, County of Suffolk seeking foreclosure, the right
to appoint a receiver, and the right to pursue a deficiency judgment against the
borrower, an affiliate of the Company. There can be no assurance that the
holders of these mortgage loans will not seek, and succeed in their attempts, to
foreclose on these properties, have receivers appointed, and obtain deficiency
judgments against the Company. The Company accounts for its ownership interests
in these properties in accordance with the equity method of accounting.
The Company, through affiliates, holds a 51% interest in the owner of Phases II
and III in an outlet center in Bellport, NY. The owner failed to make a $3,000
principal payment when due on November 1, 2000. The Company and the holder of
the first mortgage loan are currently in discussions regarding a modification of
the loan payment terms and an agreement by the lender to forebear from pursuing
remedies under the applicable loan documents. Although the Company has made the
inital payment of $250 required under the modified loan payment term, there can
be no assurance that such discussions will lead to a modification of the first
mortgage loan or that the first mortgage lender will not pursue its remedies
under the loan documents. The Company accounts for its ownership interests in
this property in accordance with the equity method of accounting. The payment of
the amount due under the loan has been guaranteed by the Company.
Note 5 - Prime/Estein Joint Venture Transaction
On August 6, 1999, the Company entered into an agreement (the "Prime/Estein
Joint Venture Agreement") to sell three factory outlet centers, including two
future expansions, to a joint venture (the "Venture") between an affiliate of
Estein & Associates USA, Ltd. ("Estein"), a real estate investment company, and
the Company. The Prime/Estein Joint Venture Agreement provided for a total
purchase price of $274,000, including (i) the assumption of approximately
$151,500 of first mortgage indebtedness, (ii) an $8,000 payment to the Company
for a ten-year covenant-not-to-compete (the "Covenant-not-to-Compete") and (iii)
a $6,000 payment to the Company for a ten-year licensing agreement (the
"Licensing Agreement") with the Venture to continue the use of the "Prime
Outlets" brand name. The Covenant-not-to-Compete and the Licensing Agreement are
collectively referred to as the "Deferred Income".
On November 19, 1999, the Company completed the initial installment of the
Prime/Estein Joint Venture Agreement consisting of the sale of Prime Outlets at
Birch Run to the Venture for aggregate consideration of $117,000, including a
$64,500 "wrap-around" first mortgage provided by the Company. In connection with
the sale of Prime Outlets at Birch Run, the Company received cash proceeds of
$33,303, net of transaction costs, and recorded a loss on the sale of real
estate of $9,326. Effective November 19, 1999, the Company commenced accounting
for its 30.0% ownership interest in Prime Outlets at Birch Run in accordance
with the equity method of accounting. The "wrap-around" first mortgage provided
by the Company to the Venture has a ten-year term at a fixed interest rate of
7.75% requiring monthly payments of principal and interest pursuant to a 25-year
amortization schedule. The Company's net investment in the "wrap-around" first
mortgage as of September 30, 2000 and December 31, 1999 was $10,733 and $10,745,
respectively, which is included in other assets in the Consolidated Balance
Sheet. Additionally, the Venture assumed $53,755 of outstanding mortgage
indebtedness. Included in the aggregate consideration was $8,500 of Deferred
Income. The Deferred Income is included in accounts payable and other
liabilities in the Consolidated Balance Sheet and is being amortized into other
income over its ten-year life.
During the fourth quarter of 1999, the Company recorded a loss on the sale of
real estate of $5,827 related to the write-down of the carrying value of Prime
Outlets at Williamsburg based on the terms of the Prime/Estein Joint Venture
Agreement. On February 23, 2000, the Company completed the second installment of
the Prime/Estein Joint Venture Agreement consisting of the sale of Prime Outlets
at Williamsburg to the Venture for aggregate consideration of $59,000, including
(i) the assumption of mortgage indebtedness of $32,500 and (ii) $2,750 of
Deferred Income. In connection with the sale of Prime Outlets at Williamsburg,
the Company received (i) cash proceeds of $11,063, net of transaction costs, and
(ii) a promissory note in the amount of $10,000 from the Venture (of which
Estein's obligation is $7,000). The promissory note requires the monthly payment
of interest in arrears at an annual rate of 7.75% and the outstanding principal
amount is payable on or before December 15, 2000. If the Company fails to
refinance or convert the Venture's mortgage indebtedness of $32,500 to a
permanent loan at a fixed rate of interest, the December 15, 2000 maturity date
of the $10,000 promissory note will be extended until such time as such
refinancing or conversion has been obtained. In addition, if the refinancing or
conversion does not occur on or before December 15, 2000, the Company will be
obligated to pay Estein $250 and the Company will not be entitled to receive
operating distributions arising out of Prime Outlets at Williamsburg until such
refinancing or conversion occurs.
Under the Prime/Estein Joint Venture Agreement, as amended, the outside closing
date for the sale of Prime Outlets at Hagerstown, including an expansion which
opened during 2000 (together, the "Hagerstown Center"), was August 31, 2000.
Estein terminated the Prime/Estein Joint Venture Agreement as it applied to the
sale of the Hagerstown Center when the closing did not occur by the specified
closing date.
In connection with the discontinuance of the proposed sales of a 70% joint
venture interest in (i) the Hagerstown Center and (ii) a proposed expansion to
Prime Outlets at Williamsburg (the "Williamsburg Expansion"), the Company
reduced the carrying value of the Deferred Income by $9,550 and incurred other
charges aggregating $1,100 during the third quarter of 2000. The reduction in
the Deferred Income is attributable to the remaining proceeds that will not be
received as a result of the termination of the Prime/Estein Joint Venture
Agreement. The $1,100 of other charges include (i) a $600 fee payable to Estein
resulting from failure to close the sale of the Hagerstown Center on or before
August 31, 2000 and (ii) a $500 fee payable to Estein for non-completion of the
Williamsburg Expansion by December 15, 2000, which the Company will not meet.
As of September 30, 2000, the Company reclassified $61,908 representing the
aggregate carrying value of the Hagerstown Center from assets held for sale to
investment in rental property in the Consolidated Balance Sheet. In connection
with the reclassification, the Company recorded $1,967 of depreciation and
amortization expense related to the Hagerstown Center for the period from
January 1 through September 30, 2000 in the third quarter of 2000.
As of December 31, 1999, the Company classified $97,639 representing the
aggregate carrying value of Prime Outlets at Williamsburg and Prime Outlets at
Hagerstown as assets held for sale in its Consolidated Balance Sheet.
Note 6 - Shareholders' Equity
In order to qualify as a Real Estate Investment Trust ("REIT") for federal
income tax purposes, the Company is required to pay distributions to its common
and preferred shareholders of at least 95.0% of its REIT taxable income in
addition to satisfying other requirements. Although the Company intends to make
distributions in accordance with the requirements of the Internal Revenue Code
of 1986, as amended, necessary to remain qualified as a REIT, it also intends to
retain such amounts as it considers necessary from time to time for capital and
liquidity needs of the Company.
The Company's current policy with respect to common stock distributions is to
only make payments to the extent necessary to maintain its status as a REIT for
federal income tax purposes. Based on the Company's current federal income tax
projections, it does not expect to pay any distributions on its common stock or
common units of limited partnership interest in Prime Retail, L.P. during 2000.
With respect to distributions on the Company's 10.5% Series A Senior Cumulative
Preferred Stock ("Senior Preferred Stock") and 8.5% Series B Cumulative
Participating Convertible Preferred Stock ("Series B Convertible Preferred
Stock"), the Board of Directors did not declare the quarterly distributions on
such preferred stock due February 15, 2000, May 15, 2000 and August 15, 2000,
respectively. The Board of Directors announced on July 24, 2000 that, based on
the Company's current financial situation and the Company's current federal
income tax projections, the Company does not anticipate paying any quarterly
distributions on the Senior Preferred Stock and the Series B Convertible
Preferred Stock during the remainder of 2000. The Company is currently in
arrears on its preferred stock distributions due February 15, 2000, May 15, 2000
and August 15, 2000. Non-payment of the quarterly preferred stock distributions
due November 15, 2000 will represent the fourth consecutive quarter that such
dividends are in arrears. The holders of the Senior Preferred Stock and Series B
Convertible Preferred Stock have the right to elect two additional members to
the Company's Board of Directors if the equivalent of six consecutive quarterly
dividends on these series of preferred stock are in arrears. Each of such two
directors would be elected to serve until the earlier of (i) the election and
qualification of such director's successor, or (ii) payment of the dividend
arrearage.
The Company is currently prohibited under the terms of more than one of its
credit agreements from paying dividends or distributions as a result of
non-compliance with a financial covenant. In addition, the Company may make no
distributions to its common shareholders unless it is current with respect to
distributions to its preferred shareholders. As of September 30, 2000, unpaid
dividends for the period November 16, 1999 through September 30, 2000 on the
Senior Preferred Stock and Series B Convertible Preferred Stock aggregated
$5,283 and $14,556, respectively. Annualized dividends on the Company's Senior
Preferred Stock and Series B Convertible Preferred Stock outstanding as of
September 30, 2000 are $6,038 and $16,636, respectively.
Note 7 - Special Charges
On April 12, 2000, the Company announced that it had been unable to conclude an
agreement to transfer ownership of its wholly-owned e-commerce subsidiary,
primeoutlets.com inc., also known as eOutlets.com, to a management-led investor
group comprised of eOutlets.com management and outside investors. Effective
April 12, 2000, eOutlets.com ceased all operations and on November 6, 2000 filed
for bankruptcy under Chapter 7. In connection with the discontinuance of
eOutlets.com, the Company incurred a non-recurring loss of $14,703 which
includes (i) the write-off of $3,497 of costs capitalized during 1999 and (ii)
$11,206 of costs incurred during the nine months ended September 30, 2000.
During the second quarter of 2000, management established a formal plan to sell
two of its properties and, accordingly, reclassified their respective carrying
values to assets held for sale in the Consolidated Balance Sheet as of June 30,
2000. In accordance with the requirements of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed of", the Company incurred a provision for asset
impairment of $8,538 to reduce the carrying value of these properties to their
estimated sales value, less cost to dispose. The aggregate carrying value of
these properties as of September 30, 2000 was $6,640.
The operating results for the Company's Designer Connection outlet stores are
reflected in Loss on Designer Connection in the Consolidated Statements of
Operations for all periods presented. When accounting for the fourth quarter of
1999, the Company decided to discontinue the operations of its Designer
Connection outlet stores. The operations of the Designer Connection outlet
stores ceased during July of 2000.
Note 8 - Commitments and Contingencies
The Company was required, pursuant to a real estate purchase agreement and two
ground leases in which it is the ground lessee, to purchase for $6,809 the
unowned 50% interests in parcels of land underlying Phases III and IV of Prime
Outlets at Gilroy in Gilroy, California. The Company did not close on the
scheduled closing date. The seller has several rights and remedies under the
relevant documents, including amending the base rent under the ground leases,
amending the purchase price, and seeking specific performance. On August 9, 2000
the seller notified the Company that it has exercised its right under the
relevant documents to require the Company to close within 180 days. The seller
also reserved its other remedies under the relevant documents. The seller does
not have the right to terminate the ground leases as a remedy. On August 29,
2000, the seller brought an action in the Superior Court of California, County
of Santa Clara alleging breach of contract and seeking the declaratory relief
and compensatory damages.
Note 9 - Legal Proceedings
On October 13, 2000 and thereafter, various complaints were filed in the United
States District Court for the District of Maryland against Prime Retail, Inc.
(the "Company") and four individual defendants. The four individual defendants
are: William H. Carpenter, Jr., the former President and Chief Operating Officer
and a current director of the Company; Abraham Rosenthal, the former Chief
Executive Officer and a director of the Company; Michael W. Reschke, the former
Chairman of the Board and a current director of the Company; and Robert P.
Mulreaney, the former Executive Vice President, Chief Financial Officer and
Treasurer of the Company. The complaints were brought by alleged stockholders of
the Company, individually and purportedly as class actions on behalf of all
other stockholders of the Company. The complaints allege that the individual
defendants made statements about the Company that were in violation of the
federal securities laws. The complaints seek unspecified damages and other
relief. The Company believes that the complaints are without merit and intends
to defend them vigorously. The outcome of these lawsuits, and the ultimate
liability of the defendants, if any, cannot be predicted.
The Company and its affiliates were defendants in a lawsuit filed on August 10,
1999 in the Circuit Court for Baltimore City and removed to U. S. District Court
for the District of Maryland (the "U.S. District Court") on August 20, 1999. The
plaintiff alleged that the Company and its related entities overcharged tenants
for common area maintenance charges and promotion fund charges. The U.S.
District Court dismissed the lawsuit on June 19, 2000. The plaintiff has filed a
notice of its appeal from the U.S. District Court's decision. Management
believes that the Company has acted properly and intends to defend this lawsuit
vigorously. While any litigation contains an element of uncertainty, the Company
believes the losses, if any, resulting from this case will not have a material
adverse effect on the consolidated financial statements of the Company.
Several entities (the "Plaintiffs") have filed or stated an intention to file
lawsuits (the "Lawsuits") against the Company and its affiliates in which the
Plaintiffs are seeking to hold them responsible under various legal theories for
liabilities incurred by primeoutlets.com, inc., also known as eOutlets,
including the theory that the Company guaranteed the obligations of eOutlets and
the theory that the Company was the alter ego of eOutlets. Primeoutlets.com,
inc. is also a defendant in some, but not all, of the Lawsuits. The Company
believes that it is not liable to the Plaintiffs as there was no privity of
contract between it and the various Plaintiffs. The Company intends to defend
all Lawsuits vigorously. In the case captioned Convergys Customer Management
Group, Inc. v. Prime Retail, Inc. and primeoutlets.com, inc., currently pending
in the Court of Common Pleas for Hamilton County (Ohio), the Company prevailed
in a motion to dismiss Plaintiff's claim that the Company was liable for
primeoutlets.com, inc.'s breach of contract based on the doctrine of piercing
the corporate veil. The outcome of these Lawsuits, and the ultimate liability of
the Company, if any, cannot be predicted. While any litigation contains an
element of uncertainty, the Company believes the losses, if any, resulting from
the Lawsuits will not have a material adverse effect on the consolidated
financial statements of the Company.
The New York Stock Exchange and the Securities and Exchange Commission have
notified the Company that they are reviewing transactions in the stock of the
Company prior to the Company's January 18, 2000 press release concerning
financial matters.
<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. These statements are subject to 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 risk that the Company may be unable to obtain waivers or
amendments to the provisions of its credit agreements that are presently in
default or to refinance the indebtedness outstanding under such agreements in
the event they are accelerated; the effects of future events on the Company's
financial performance; risks related to the retail industry in which the
Company's outlet centers compete, including the potential adverse impact of
external factors, such as inflation, consumer confidence, unemployment rates and
consumer tastes and preferences; risks associated with the Company's planned
asset sales; 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; risks associated with litigation; and
risks associated with competition from web-based retailers.
Outlet Portfolio
The Company grew to its present size, a process largely completed by the end of
1999, by developing and acquiring outlet centers and expanding its existing
outlet centers. As summarized in TABLE 1, the Company's outlet portfolio
consisted of 52 outlet centers totaling 15,089,000 square feet of gross leasable
area ("GLA") at September 30, 2000, compared to 51 operating manufacturers'
outlet centers totaling 14,699,000 square feet of GLA at September 30, 1999.
On November 19, 1999, the Company sold Prime Outlets at Birch Run, which
contains 724,000 square feet of GLA, to a joint venture partnership with an
unrelated party, (the "Prime/Estein Venture"). Additionally, on February 23,
2000, the Company sold Prime Outlets at Williamsburg, which contains 274,000
square feet of GLA, to the Prime/Estein Venture. The Company owns a 30% interest
in the Prime/Estein Venture. Commencing on the dates of disposition, the Company
accounts for the operating results of these outlet centers in accordance with
the equity method of accounting. The sales of these outlet centers are
collectively referred to as the "Prime/Estein Transaction."
During 1999, the Company (i) opened two expansions to existing outlet centers
totaling 85,000 square feet of GLA (of which 21,000 square feet and 64,000
square feet opened in the first and third quarters, respectively) and (ii)
acquired in September 1999 from Horizon Group Properties, Inc. ("HGP") ownership
interests in the Bellport Outlet Center which consists of 292,000 square feet of
GLA. During the nine months ended September 30, 2000, the Company (i) opened
four expansions to existing centers aggregating 214,000 square feet of GLA and
(ii) opened a new outlet center in Puerto Rico which consists of 176,000 square
feet of GLA (the "Portfolio Expansion").
The Company's outlet center portfolio was 92% and 94% occupied on September 30,
2000 and 1999, respectively. For the three and nine months ended September 30,
2000, weighted-average occupancy in the outlet center portfolio was 91%,
compared to 93% for the same periods in 1999. The decline was primarily
attributable to certain tenant bankruptcies and abandonments.
<PAGE>
<TABLE>
Portfolio of Properties
September 30, 2000
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Grand GLA Percentage
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 95
IV May 1998 10,000 100
------- ---
131,000 99
Prime Outlets at Fremont - Fremont, Indiana............................ I October 1985 118,000 95
II November 1993 51,000 100
III October 1994 60,000 98
------- ---
229,000 97
Prime Outlets at Birch Run (2) - Birch Run, Michigan................... I-XVI Various 591,000 96
XVII-
XVIII 1997 133,000 87
------- ---
724,000 95
Prime Outlets at Latham - Latham, New York............................. I August 1987 43,000 88
Prime Outlets at Michigan City - Michigan City, Indiana................ I November 1987 199,000 100
II May 1988 130,000 94
III July 1991 36,000 95
IV July 1994 42,000 100
V December 1994 26,000 98
VI May 1995 58,000 96
------- ---
491,000 98
Prime Outlets at Williamsburg (3) - Williamsburg, Virginia............. I April 1988 67,000 96
II November 1988 60,000 100
III October 1990 49,000 100
IV 1995 98,000 100
------- ---
274,000 99
Prime Outlets at Kenosha - Kenosha, Wisconsin.......................... I September 1988 89,000 94
II July 1989 65,000 100
III May 1990 115,000 100
------- ---
269,000 98
Prime Outlets at Silverthorne - Silverthorne, Colorado................. I November 1988 95,000 93
II November 1990 75,000 89
III November 1993 88,000 83
------- ---
258,000 88
Prime Outlets at Edinburgh - Edinburgh, Indiana........................ I 1988 156,000 100
II November 1994 142,000 98
------- ---
298,000 99
Prime Outlets at Burlington - Burlington, Washington .................. I May 1989 89,000 84
II October 1989 36,000 100
III April 1993 49,000 97
------- ---
174,000 91
Prime Outlets at Queenstown - Queenstown, Maryland..................... I June 1989 67,000 97
II June 1990 55,000 100
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)
September 30, 2000
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Grand GLA Percentage
Outlet Centers Phase Opening Date (Sq. Ft.) Leased(1)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Outlets at Hillsboro - Hillsboro, Texas.......................... I October 1989 95,000 100%
II January 1992 101,000 97
III May 1995 163,000 93
------- ---
359,000 96
Prime Outlets at Oshkosh - Oshkosh, Wisconsin.......................... I November 1989 215,000 93
II July 1991 45,000 99
------- ---
260,000 94
Prime Outlets at Warehouse Row (4) - Chattanooga, Tennessee............ I November 1989 95,000 85
Prime Outlets at Gilroy - Gilroy, California........................... I January 1990 94,000 100
II August 1991 109,000 98
III October 1992 137,000 96
IV July 1994 170,000 100
V November 1995 69,000 100
------- ---
579,000 99
Prime Outlets at Perryville - Perryville, Maryland..................... I June 1990 148,000 87
Prime Outlets at Sedona - Sedona, Arizona ............................. I August 1990 82,000 100
Prime Outlets at San Marcos - San Marcos, Texas........................ I August 1990 177,000 99
II August 1991 70,000 95
III August 1993 117,000 97
IIIB November 1994 20,000 91
IIIC November 1995 35,000 100
IIID May 1998 18,000 100
VA August 1999 64,000 99
VB May 2000 17,000 100
VC May 2000 31,000 100
------- ---
549,000 98
Prime Outlets at Anderson - Anderson, California....................... I August 1990 165,000 100
Prime Outlets at Post Falls - Post Falls, Idaho ....................... I July 1991 111,000 67
II July 1992 68,000 90
------- ---
179,000 75
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 97
------- ---
481,000 99
Prime Outlets at Morrisville - Raleigh - Durham, North Carolina........ I October 1991 181,000 93
II July 1996 6,000 100
------- ---
187,000 94
Prime Outlets at Naples - Naples/Marco Island, Florida................. I December 1991 94,000 89
II December 1992 32,000 96
III March 1998 20,000 98
------- ---
146,000 92
Prime Outlets at Conroe - Conroe, Texas................................ I January 1992 93,000 92
II June 1994 163,000 97
III October 1994 26,000 79
------- ---
282,000 94
Prime Outlets at Bellport (5) - Bellport, New York..................... I May 1992 95,000 82
II November 1996 126,000 80
III October 1997 71,000 51
------- ---
292,000 70
</TABLE>
<PAGE>
<TABLE>
Portfolio of Properties (continued)
September 30, 2000
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Grand GLA Percentage
Outlet Centers Phase Opening Date (Sq. Ft.) Leased(1)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Outlets at Niagara Falls USA - Niagara Falls, New York........... I July 1992 300,000 99%
II August 1995 234,000 88
------- ---
534,000 94
Prime Outlets at Woodbury - Woodbury, Minnesota........................ I July 1992 129,000 77
II November 1993 100,000 90
III August 1994 21,000 100
------- ---
250,000 84
Prime Outlets at Calhoun - Calhoun, Georgia............................ I October 1992 123,000 94
II October 1995 131,000 89
------- ---
254,000 91
Prime Outlets at Castle Rock - Castle Rock, Colorado................... I November 1992 181,000 98
II August 1993 94,000 98
III November 1993 95,000 100
IV August 1997 110,000 100
------- ---
480,000 99
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 - Jeffersonville, Ohio.............. I March 1993 126,000 64
II August 1993 123,000 35
III October 1994 65,000 74
------- ---
314,000 55
Prime Outlets at Jeffersonville I - Jeffersonville, Ohio............... I July 1993 186,000 93
II November 1993 100,000 100
IIB November 1994 13,000 94
IIIA August 1996 35,000 97
IIIB March 1997 73,000 100
------- ---
407,000 96
Prime Outlets at Gainesville - Gainesville, Texas...................... I August 1993 210,000 88
II November 1994 106,000 79
------- ---
316,000 85
Prime Outlets at Loveland - Loveland, Colorado......................... I May 1994 139,000 95
II November 1994 50,000 88
III May 1995 114,000 91
IV May 1996 25,000 60
------- ---
328,000 90
Prime Outlets at Oxnard (6) - Oxnard, California....................... I June 1994 148,000 92
Prime Outlets at Grove City - Grove City, Pennsylvania................. I August 1994 235,000 100
II November 1994 95,000 97
III November 1995 85,000 99
IV November 1996 118,000 99
------- ---
533,000 99
Prime Outlets at Huntley - Huntley, Illinois........................... I August 1994 192,000 94
II November 1995 90,000 61
------- ---
282,000 83
Prime Outlets at Florida City - Florida City, Florida.................. I September 1994 208,000 79
</TABLE>
<PAGE>
<TABLE>
Portfolio of Properties (continued)
September 30, 2000
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Grand GLA Percentage
Outlet Centers Phase Opening Date (Sq. Ft.) Leased(1)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Outlets at Pismo Beach - Pismo Beach, California................ I November 1994 148,000 90%
Prime Outlets at Tracy - Tracy, California............................ I November 1994 153,000 92
Prime Outlets at Vero Beach - Vero Beach, Florida..................... I November 1994 210,000 96
II August 1995 116,000 89
------- ---
326,000 94
Prime Outlets at Waterloo - Waterloo, New York......................... I March 1995 208,000 97
II September 1996 115,000 94
III April 1997 68,000 100
------- ---
391,000 97
Prime Outlets at Odessa - Odessa, Missouri............................. I July 1995 191,000 83
II November 1996 105,000 78
------- ---
296,000 81
Prime Outlets at Darien (7) - Darien, Georgia.......................... I July 1995 238,000 80
IIA November 1995 49,000 99
IIB July 1996 20,000 100
------- ---
307,000 84
Prime Outlets at New River (6) - Phoenix, Arizona...................... I September 1995 217,000 95
II September 1996 109,000 83
------- ---
326,000 91
Prime Outlets at Gulfport (8) - Gulfport, Mississippi.................. I November 1995 228,000 89
IIA November 1996 40,000 94
IIB November 1997 38,000 84
------- ---
306,000 89
Prime Outlets at Lodi - Burbank, Ohio.................................. I November 1996 205,000 90
IIA May 1998 33,000 100
IIB November 1998 75,000 91
------- ---
313,000 92
Prime Outlets at Gaffney - Gaffney, South Carolina..................... I November 1996 235,000 93
II July 1998 70,000 92
------- ---
305,000 93
Prime Outlets at Lee - Lee, Massachusetts............................. I June 1997 224,000 100
Prime Outlets at Lebanon - Lebanon, Tennessee......................... I April 1998 208,000 98
IIA March 1999 21,000 100
------- ---
229,000 98
Prime Outlets at Hagerstown - Hagerstown, Maryland..................... I August 1998 218,000 100
II November 1998 103,000 100
IIIA March 2000 68,000 98
IIIB April 2000 98,000 83
---------- ---
487,000 96
Prime Outlets at Puerto Rico - Barceloneta, Puerto Rico................ I July 2000 176,000 90
---------- ---
Total Outlet Centers (9) 15,089,000 92%
========== ===
====================================================================================================================================
</TABLE>>
<PAGE>
Notes:
(1) Percentage reflects fully executed leases as of September 30, 2000 as a
percent of square feet of GLA.
(2) On November 19, 1999, the Company sold this outlet center to a joint
venture partnership with an unrelated party in which the Company owns a 30%
interest.
(3) On February 23, 2000, the Company sold this outlet center to a joint
venture partnership with an unrelated party in which the Company owns a 30%
interest.
(4) The Company owns a 2% partnership interest as the sole general partner in
Phase I of this property but is entitled to 99% of the property's operating
cash flow and net proceeds from a sale or refinancing. This mixed-use
development includes 154,000 square feet of office space which was 99%
leased as of September 30, 2000.
(5) On September 1, 1999, the Company acquired from HGP 50% of Phase I and 45%
(though it simultaneously acquired another 6% from the other partner)of
Phases II and III of this outlet center which it owns in joint venture
partnerships with unrelated parties.
(6) The Company owns 50% of this outlet center in a joint venture partnership
with an unrelated third party.
(7) The Company operates this outlet center pursuant to a long-term ground
lease under which the Company receives the economic benefit of a 100%
ownership interest.
(8) The real property on which this outlet center is located is subject to a
long-term ground lease.
(9) The Company also owns three community centers not included in this table
containing 424,000 square feet of GLA in the aggregate that were 83% leased
as of September 30, 2000.
<PAGE>
Results of Operations
Comparison of the three months ended September 30, 2000 to the three months
ended September 30, 1999
Summary
The Company reported net income (loss) of $(3,584) and $6,530 for the three
months ended September 30, 2000 and 1999, respectively. For the three months
ended September 30, 2000, the net income (loss) applicable to common
shareholders was $(9,252), or $(0.21) per common share on a basic and diluted
basis. For the three months ended September 30, 1999, the net income applicable
to common shareholders was $482, or $0.01 per common share on a basic and
diluted basis.
The 2000 results include (i) other charges of $1,100 incurred in connection with
the termination of the sale of joint venture interests in certain properties,
(ii) a loss on eOutlets.com of $424 and (iii) a gain on Designer Connection of
$274. The 1999 results include a loss on Designer Connection of $119.
Revenues
Total revenues were $71,408 for the three months ended September 30, 2000
compared to $76,902 for the three months ended September 30, 1999, a decrease of
$5,494, or 7.1%. Base rents decreased $3,045, or 6.2%, in 2000 compared to 1999.
Straight-line rent income (included in base rents) were $92 and $335 for the
three months ended September 30, 2000 and 1999, respectively. These decreases
are primarily due to the Prime/Estein Transaction and the decrease in portfolio
occupancy, partially offset by the Portfolio Expansion.
Percentage rents, which represent rents based on a percentage of sales volume
above a specified threshold, decreased $202, or 10.3%, during the three months
ended September 30, 2000 compared to the same period in 1999. This decline was
primarily attributable to the Prime/Estein Transaction. Tenant reimbursements,
which represent the contractual recovery from tenants of certain operating
expenses, decreased by $912, or 4.1%, primarily due to the Prime/Estein
Transaction and a decrease in portfolio occupancy, partially offset by the
Portfolio Expansion.
Interest and other income decreased by $1,335, or 36.8%, to $2,289 during the
three months ended September 30, 2000 compared to $3,624 for the three months
ended September 30, 1999. The decrease reflects (i) lower equity earnings from
investment in partnerships of $679, (ii) a reduction in lease buyout income of
$553, (iii) lower temporary tenant income of $394 (iv) lower municipal
assistance income of $143 and (v) decrease in all other miscellaneous income of
$343. These decreases were partially offset by (i) higher interest income of
$304, (ii) amortization of deferred fees of $281 and (iii) increased property
management fees of $192.
Expenses
Property operating expenses decreased by $577, or 3.2%, to $17,204 for the three
months ended September 30, 2000 compared to $17,781 for the same period in 1999.
Real estate taxes decreased by $178, or 3.1%, to $5,575 for the three months
ended September 30, 2000 from $5,753 in the same period in 1999. The decrease in
property operating expenses is primarily due to the Prime/Estein Transaction
partially offset by the Portfolio Expansion. The decrease in real estate taxes
is primarily attributable to the Prime/Estein Transaction, partially offset by
increased assessments and the Portfolio Expansion. As shown in TABLE 2,
depreciation and amortization expense decreased by $1,665 or 8.6%, to $17,679
for the three months ended September 30, 2000 compared to $19,344 for the same
period in 1999. This decrease is primarily due to the Prime/Estein Transaction,
partially offset by the Portfolio Expansion and the reclassification of Prime
Outlets at Hagerstown from assets held for sale to investment in rental
property. In connection with the reclassification, the Company recorded $1,967
of depreciation and amortization expense related to the Hagerstown Center for
the period from January 1 through September 30, 2000 in the third quarter of
2000.
TABLE 2 -- Components of Depreciation and Amortization Expense
The components of depreciation and amortization expense are summarized as
follows:
--------------------------------------------------------------------------------
Three months ended September 30, 2000 1999
--------------------------------------------------------------------------------
Building and improvements $ 9,370 $10,228
Land improvements 1,767 1,442
Tenant improvements 5,689 6,841
Furniture and fixtures 710 637
Leasing commissions 143 196
------- -------
Total $17,679 $19,344
======= =======
================================================================================
<PAGE>
TABLE 3 -- Components of Interest Expense
The components of interest expense are summarized as follows:
--------------------------------------------------------------------------------
Three months ended September 30, 2000 1999
--------------------------------------------------------------------------------
Interest incurred $25,302 $24,480
Interest capitalized (727) (1,168)
Amortization of deferred financing costs 838 974
Amortization of interest rate protection contracts 17 3
------- --------
Total $25,430 $ 24,289
======= ========
================================================================================
As shown in TABLE 3, interest expense for the three months ended September 30,
2000 increased by $1,141, or 4.7%, to $25,430 compared to $24,289 for the same
period in 1999. This increase reflects (i) higher interest incurred of $822,
(ii) a decrease in the amount of interest capitalized in connection with
development projects of $441 and (iii) an increase in amortization of interest
rate protection contracts of $14. Partially offsetting these items was a
decrease in amortization of deferred financing costs of $136.
The increase in interest incurred is primarily attributable to an increase in
the weighted average interest rate for the three months ended September 30, 2000
compared to the same period in 1999. The weighted average interest rates were
8.24% and 7.47% for the 2000 and 1999 periods, respectively. The increase is
partially offset by a decrease of $83,311 in the Company's average debt
outstanding during the three months ended September 30, 2000 compared to the
same period in 1999.
Other charges for the three months ended September 30, 2000 increased by $4,679,
or 479.9%, to $5,654 compared to $975 for the same period in 1999. One of the
causes of this increase were costs of $1,100 incurred in connection with the
discontinuance of the proposed sale of a 70% joint venture interest in Prime
Outlets at Hagerstown and a future expansion to Prime Outlets at Williamsburg
(see Liquidity and Capital Resources - Prime/Estein Joint Venture Transaction"
for additional information). In addition, this increase reflects (i) a higher
provision for uncollectible accounts receivable of $1,420 resulting in part from
certain tenant bankruptcies and abandonments, (ii) higher marketing expenses of
$1,462, and (iii) an increase in all other miscellaneous charges of $697.
On April 12, 2000, the Company announced that it had been unable to conclude an
agreement to transfer ownership of its wholly-owned e-commerce subsidiary,
primeoutlets.com inc., also known as eOutlets.com, to a management-led investor
group comprised of eOutlets.com management and outside investors. Effective
April 12, 2000, eOutlets.com ceased all operations and on November 6, 2000 filed
for bankruptcy under Chapter 7. The Company incurred a non-recurring loss of
$424 during the three months ended September 30, 2000 in respect of this
discontinuance of operations.
In connection with re-leasing space to new merchants, the Company incurred
$2,221 and $1,392 in capital expenditures during the three months ended
September 30, 2000 and 1999, respectively.
Comparison of the nine months ended September 30, 2000 to the nine months ended
September 30, 1999
Summary
The Company reported net income (loss) of $(31,062) and $20,865 for the nine
months ended September 30, 2000 and 1999, respectively. For the nine months
ended September 30, 2000, the net income (loss) applicable to common
shareholders was $(48,066), or $(1.11) per common share on a basic and diluted
basis. For the nine months ended September 30, 1999, the net income applicable
to common shareholders was $16,571, or $0.38 and $0.06 per common share on a
basic and diluted basis, respectively.
The 2000 results include (i) a loss on eOutlets.com of $14,703, (ii) a provision
for asset impairment of $8,538, (iii) general and administrative expenses
consisting of severance and other compensation costs aggregating $2,421 and
professional fees of $1,455 related to refinancing activities, (v) a loss on
Designer Connection of $1,811 and (v) other charges of $1,100 incurred in
connection with the termination of the sale of joint venture interests in
certain properties. The 1999 results include (i) an extraordinary loss of $2,106
(net of minority interests of $534) relating to the early extinguishment of
certain long-term debt and (ii) a loss on Designer Connection of $1,007.
Revenues
Total revenues were $212,833 for the nine months ended September 30, 2000
compared to $230,819 for the nine months ended September 30, 1999, a decrease of
$17,986, or 7.8%. Base rents decreased $11,994, or 8.2%, in 2000 compared to
1999. Straight-line rent (expense) income (included in base rents) were
$(288)and $765 for the nine months ended September 30, 2000 and 1999,
respectively. These decreases are primarily due to the Prime/Estein Transaction
and a decrease in portfolio occupancy, partially offset by the Portfolio
Expansion.
Percentage rents, which represent rents based on a percentage of sales volume
above a specified threshold, decreased $1,649, or 27.5%, during the nine months
ended September 30, 2000 compared to the same period in 1999. This decline was
primarily attributable to the Prime/Estein Transaction. Tenant reimbursements,
which represent the contractual recovery from tenants of certain operating
expenses, decreased by $4,829 or 7.1%, primarily due to the Prime/Estein
Transaction and the decrease in portfolio occupancy, partially offset by the
Portfolio Expansion.
Interest and other income increased by $486, or 5.1%, to $10,032 during the nine
months ended September 30, 2000 compared to $9,546 for the nine months ended
September 30, 1999. This increase reflects (i) a nonrecurring first quarter 2000
gain on sale of outparcel land in Camarillo, CA of $2,471, (ii) higher property
management fee income of $581, (iii) an increase in amortization of deferred
fees of $846 and (iv) higher interest income of $419. These were offset by (i)
reduction in equity earnings from investment in partnerships of 2,365, (ii)
lower temporary tenant income of $1,122 and (iii) decreases in all other
miscellaneous income of $344.
Expenses
Property operating expenses decreased by $3,224 or 6.0%, to $50,694 for the nine
months ended September 30, 2000 compared to $53,918 for the same period in 1999.
Real estate taxes decreased by $233, or 1.4%, to $16,813 for the nine months
ended September 30, 2000 from $17,046 in the same period in 1999. The decrease
in property operating expenses is primarily due to the Prime/Estein Transaction,
partially offset by the Portfolio Expansion. The decrease in real estate taxes
is primarily attributable to the Prime/Estein Transaction, partially offset by
increased assessments and the Portfolio Expansion. As shown in TABLE 4,
depreciation and amortization expense decreased by $6,469, or 11.5%, to $49,699
for the nine months ended September 30, 2000 compared to $56,168 for the same
period in 1999. This decrease is primarily due to the Prime/Estein Transaction
and the reclassification of certain properties to assets held for sale partially
offset by the Portfolio Expansion.
TABLE 4 -- Components of Depreciation and Amortization Expense
The components of depreciation and amortization expense are summarized as
follows:
--------------------------------------------------------------------------------
Nine months ended September 30, 2000 1999
--------------------------------------------------------------------------------
Building and improvements $26,826 $30,465
Land improvements 4,532 4,272
Tenant improvements 16,149 19,423
Furniture and fixtures 1,718 1,407
Leasing commissions 474 601
------- -------
Total $49,699 $56,168
======= =======
================================================================================
TABLE 5 -- Components of Interest Expense
The components of interest expense are summarized as follows:
--------------------------------------------------------------------------------
Nine months ended September 30, 2000 1999
--------------------------------------------------------------------------------
Interest incurred $73,690 $68,974
Interest capitalized (3,087) (3,387)
Amortization of deferred financing costs 2,508 2,364
Amortization of interest rate protection contracts 56 63
------- -------
Total $73,167 $68,014
======= =======
================================================================================
As shown in TABLE 5, interest expense for the nine months ended September 30,
2000 increased by $5,153, or 7.6%, to $73,167 compared to $68,014 for the same
period in 1999. This increase reflects (i) higher interest incurred of $4,716,
(ii) a decrease in the amount of interest capitalized in connection with the
development projects of $300 and (iii) an increase in amortization of deferred
financing costs of $144. Partially offsetting these items was a decrease in
amortization of interest rate protection contracts of $7.
The increase in interest incurred is primarily attributable to an increase in
the weighted average interest rate for the nine months ended September 30, 2000
compared to the same period in 1999. The weighted average interest rates were
8.00 % and 7.38% for the 2000 and 1999 periods, respectively. The increase is
partially offset by a decrease of $34,214 in the Company's average debt
outstanding during the nine months ended September 30, 2000 compared to the same
period in 1999.
Other charges for the nine months ended September 30, 2000 increased by $8,223,
or 237.5%, to $11,686 compared to $3,463 for the same period in 1999. One of the
causes of this increase were costs of $1,100 incurred in the third quarter in
connection with the discontinuance of the proposed sale of a 70% joint venture
interest in Prime Outlets at Hagerstown and a future expansion to Prime Outlets
at Williamsburg. In addition, the increase reflects (i) a higher provision for
uncollectible accounts receivable of $3,700 resulting in part from certain
tenant bankruptcies and abandonments, (ii) higher marketing expenses of $1,778,
(iii) increased pre-development costs of $598, (iv) an increase in all other
miscellaneous charges of $1,047.
On April 12, 2000, the Company announced that it had been unable to conclude an
agreement to transfer ownership of its wholly-owned e-commerce subsidiary,
primeoutlets.com inc., also known as eOutlets.com, to a management-led investor
group comprised of eOutlets.com management and outside investors. Effective
April 12, 2000, eOutlets.com ceased all operations and on November 6, 2000 filed
for bankruptcy under Chapter 7. In connection with the discontinuance of
eOutlets.com, the Company incurred a non-recurring loss of $14,703 which
includes (i) the write-off of $3,497 of costs capitalized during 1999 and (ii)
$11,206 of costs incurred during the nine months ended September 30, 2000.
During the second quarter of 2000, management established a formal plan to sell
two of its properties and, accordingly, reclassified their respective carrying
values to assets held for sale in the Consolidated Balance Sheet as of June 30,
2000. In accordance with the requirements of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed of", the Company incurred a provision for asset
impairment of $8,538 to reduce the carrying value of these properties to their
estimated sales value, less cost to dispose. The aggregate carrying value of
these properties as of September 30, 2000 was $6,640.
In connection with re-leasing space to new merchants, the Company incurred
$2,730 and $2,231 in capital expenditures during the nine months ended September
30, 2000 and 1999, respectively.
Sales
For the three and nine month periods ended September 30, 2000, same-space sales
in centers owned by the Company increased 2% and 2%, respectively, compared to
the same periods in 1999. "Same-space sales" is defined as the weighted average
sales per square foot reported by merchants for space open since January 1,
1999. For the three and nine month periods ended September 30, 2000, same-store
sales decreased by 2% and 2%, respectively, compared to the same periods in
1999. "Same-store sales" is defined as the weighted average sales per square
foot reported by merchants for stores opened and operated by the same merchant
since January 1, 1999. The weighted average sales per square foot reported by
all merchants was $257 for the year ended December 31, 1999.
<PAGE>
Liquidity and Capital Resources
Sources and Uses of Cash
For the nine months ended September 30, 2000, net cash provided by operating
activities was $50,501, net cash used in investing activities was $37,370, and
net cash used in financing activities was $14,487.
The uses of cash for investing activities during the nine months ended September
30, 2000 included (i) $42,828 of costs associated with development and
construction of Prime Outlets of Puerto Rico which opened July 27, 2000 and four
expansions to existing centers aggregating approximately 389,000 square feet of
GLA which opened during the six months ended June 30, 2000, and (ii) $10,227 of
costs related to eOutlets.com. Partially offsetting these uses were $11,063 of
net proceeds from the sale of Prime Outlets at Williamsburg and $4,622 of net
proceeds from the sale of outparcel land in Camarillo, CA.
The gross uses of cash for financing activities during the nine months ended
September 30, 2000 included (i) principal repayments on notes payable of $26,684
and (ii) deferred financing costs of $842. Partially offsetting these items were
proceeds from new borrowings of $13,039.
Although the Company believes that cash flow from (i) operations, (ii) new
borrowings, (iii) refinancing of certain existing debt and (iv) the potential
sale of certain properties will be sufficient to satisfy its scheduled debt
service obligations and to sustain its operations for the next year, there can
be no assurance that the Company will be successful in obtaining the required
amount of funds for these items or that the terms of capital raising activities,
if any, will be as favorable as the Company has experienced in prior periods. At
September 30, 2000, unused commitments available for borrowings were $507. (See
"Debt Financing Transaction and Debt Facility Compliance" for additional
information.)
Dividends and Distributions
In order to qualify as a Real Estate Investment Trust ("REIT") for federal
income tax purposes, the Company is required to pay distributions to its common
and preferred shareholders of at least 95.0% of its REIT taxable income in
addition to satisfying other requirements. Although the Company intends to make
distributions in accordance with the requirements of the Internal Revenue Code
of 1986, as amended, necessary to remain qualified as a REIT, it also intends to
retain such amounts as it considers necessary from time to time for capital and
liquidity needs of the Company.
The Company's current policy with respect to common stock distributions is to
only make payments to the extent necessary to maintain its status as a REIT for
federal income tax purposes. Based on the Company's current federal income tax
projections, it does not expect to pay any distributions on its common stock or
common units of limited partnership interest in Prime Retail, L.P. during 2000.
With respect to distributions on the Company's 10.5% Series A Senior Cumulative
Preferred Stock ("Senior Preferred Stock") and 8.5% Series B Cumulative
Participating Convertible Preferred Stock ("Series B Convertible Preferred
Stock"), the Board of Directors did not declare a quarterly distribution on such
preferred stock due February 15, 2000, May 15, 2000 and August 15, 2000,
respectively. The Board of Directors announced on July 24, 2000 that, based on
the Company's current financial situation and the Company's current federal
income tax projections, the Company does not anticipate paying any quarterly
distributions on the Senior Preferred Stock and the Series B Convertible
preferred Stock during the remainder of 2000. The Company is currently in
arrears on its Preferred Stock distributions due February 15, 2000, May 15, 2000
and August 15, 2000, respectively. Non-payment of the quarterly preferred stock
distributions due November 15, 2000 will represent the fourth consecutive
quarter that such dividends are in arrears. The holders of the Senior Preferred
Stock and Series B Convertible Preferred Stock, each series voting separately as
a class, have the right to elect two additional members to the Company's Board
of Directors if the equivalent of six consecutive quarterly dividends on these
series of preferred stock are in arrears. Each of such two directors would be
elected to serve until the earlier of (i) the election and qualification of such
director's successor, or (ii) payment of the dividend arrearage.
The Company is currently prohibited under the terms of more than one of its
credit agreements from paying dividends or distributions as a result of
non-compliance with a financial covenant. In addition, the Company may make no
distributions to its common shareholders unless it is current with respect to
distributions to its preferred shareholders. As of September 30, 2000, unpaid
dividends for the period November 16, 1999 through September 30, 2000 on the
Senior Preferred Stock and Series B Convertible Preferred Stock aggregated
$5,283 and $14,556, respectively. Annualized dividends on the Company's Senior
Preferred Stock and Series B Convertible Preferred Stock outstanding as of
September 30, 2000 are $6,038 and $16,636, respectively.
Debt Repayments
The Company's aggregate indebtedness was $1,214,525 and $1,260,670 at September
30, 2000 and December 31, 1999, respectively. At September 30, 2000, such
indebtedness had a weighted average maturity of 4.5 years and bore interest at a
weighted average interest rate of 7.90% per annum. At September 30, 2000,
$928,163, or 76.4%, of such indebtedness bore interest at fixed rates and
$286,362 or 23.6%, of such indebtedness bore interest at variable rates.
Scheduled principal repayments are $53,601 and $244,247 during the remainder of
2000 and 2001, respectively. (See "Debt Financing Transaction and Debt Facility
Compliance" for additional information).
The maturity of the Company's $25,000 line of credit was extended from August
30, 2000 to December 31, 2000. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Debt Financing Transaction and
Debt Facility Compliance" for additional information.
The Company is in default of a $20,000 subordinated loan (the "$20,000
Subordinated Loan") that matured on August 14, 2000. The Company has been
advised by the lender that the loan is due and payable and interest on the loan
will accrue at the default rate until the loan is repaid.
The Company's $3,540 first mortgage, collateralized by property in Knoxville,
TN, matured on October 31, 2000. The Company and the holder of the mortgage loan
have entered into a non-binding letter agreement which provides that, upon
satisfaction of certain underwriting guidelines by the lender and completion of
its due diligence, the lender would consider extending the loan to October 31,
2001. Although the Company and the lender are currently working to finalize this
extension, there can be no assurance that such an extension will be achieved.
The Company exercised its option to extend the maturity of a $19,633 first
mortgage, collateralized by property in Lebanon, TN, from December 31, 2000 to
December 31, 2001. The holder of the first mortgage has rejected the Company's
extension based on certain cross-default provisions in the loan documents.
Although the Company has taken the position that the Company's extension is
effective, there can be no assurances that its position would be upheld in a
court of law.
These loan maturities raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustment to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
Debt Financing Transaction and Debt Facility Compliance
The Company has announced that it has agreed in principle with a third party
(the "Mezzanine Lender") to obtain up to $71,000 in mezzanine financing (the
"Mezzanine Financing"). The Mezzanine Financing will be secured by pledges of
equity interests in certain outlet centers. As part of the transaction, the
Company has agreed in principle to sell to the Mezzanine Lender four of its
outlet centers, with the net proceeds from the sale expected to be approximately
$54,000. The Company is in discussions with various lenders regarding a first
mortgage loan for the Company's outlet center located in Puerto Rico in the
amount of $25,000 or more, which loan must close simultaneously with the
Mezzanine Financing to be provided by, and the sale of four outlet centers to,
the Mezzanine Lender. The Mezzanine Financing to be provided by the Mezzanine
Lender and the sale of the four outlet centers to the Mezzanine Lender, along
with the first mortgage loan for the Company's outlet center in Puerto Rico, are
collectively referred to herein as the "Debt Financing Transaction". See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Debt Financing Transaction and Debt Facility Compliance" for
additional information.
The proceeds from the Debt Financing Transaction will be used to pay off up to
$117,000 of short-term debt, including some of the debt described above, with
the remainder to be used for general corporate purposes. There can be no
assurance as to whether or when the Debt Financing Transaction will close.
Debt Contingencies
As of September 30, 2000, the Company is a guarantor or otherwise obligated with
respect to an aggregate of $12,545 of the indebtedness of Horizon Group
Properties, Inc. and its affiliates ("HGP") including a $10,000 obligation under
HGP's secured credit facility which bears a rate of interest of LIBOR plus
1.90%, matures in July 2001, and is collateralized by seven properties located
throughout the United States.
On April 1, 1998, Horizon Group, Inc. ("Horizon") consummated an agreement with
Castle & Cooke Properties, Inc. which released Horizon from its future
obligations under its long-term lease of the Dole Cannery outlet center in
Honolulu, Hawaii, in connection with the formation of a joint venture with
certain affiliates of Castle & Cooke, Inc. ("Castle & Cooke") to operate such
property. Under the terms of the agreement, Castle & Cooke Properties, Inc., the
landlord of the project and an affiliate of Castle & Cooke, released Horizon
from any continuing obligations under the lease, which expires in 2045, in
exchange for Horizon's conveyance to the joint venture of its rights and
obligations under such lease. The agreement also provided that Horizon transfer
to such joint venture substantially all of Horizon's economic interest in its
outlet center in Lake Elsinore, California together with legal title to vacant
property located adjacent to the center. As of September 30, 2000, the Company
held a small minority interest in the joint venture but has no obligation or
commitment with respect to the post-closing operations of the Dole Cannery
project. Mortgage indebtedness with an outstanding balance of $28,837 at
September 30, 2000, for which one of the Company's subsidiary partnerships
remains legally responsible, is collateralized by a first mortgage on the Lake
Elsinore outlet center. The joint venture, as a limited partner in such
subsidiary partnership, is obligated to make capital contributions to the
partnership to pay debt financing, operating and other expenses under certain
conditions. The subsidiary partnership will remain legally responsible for such
expenses in case of any shortfalls by the joint venture with respect to such
capital contributions. Castle & Cooke has provided the Company with an
unconditional guaranty with respect to any such shortfalls.
Debt Facility Compliance
As a result of its financial results for the quarters ended December 31, 1999,
March 31, 2000, June 30, 2000 and September 30, 2000, the Company is not in
compliance with financial covenants contained in certain credit facilities.
Non-compliance with these covenants as well as the Company's default with
respect to the $20,000 Subordinated Loan and other loan facilities has triggered
cross-default provisions with respect to several other debt facilities. None of
these loans has been accelerated nor has notice of any lender's intention to
accelerate been received by the Company. The Company is in discussions with the
affected lenders regarding either paying off these loans in their entirety using
proceeds from the Debt Financing Transaction, or modifying the terms and
financial covenants so that the Company will be in compliance at the time the
Debt Financing Transaction closes.
If the Company is unable to close the Debt Financing Transaction, it will look
to obtain alternative financing from other financial institutions or the
potential sale of certain properties as sources of cash to repay the amounts
outstanding under such loans. This condition also raises substantial doubt about
the Company's ability to continue as a going concern. The financial statements
do not include any adjustment to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
Although the Company continues to maintain its regularly scheduled interest
payments under all of its indebtedness, there can be no assurance that one or
all of the affected lenders will not attempt to accelerate the maturity of its
indebtedness or pursue other remedies under their respective loan documents.
Additionally, there can be no assurance that the Company will be in compliance
with its financial debt covenants in future periods since the Company's future
financial performance is subject to various risks and uncertainties, including
but not limited to, the effects of increases in market interest rates from
current levels, the risk of potential increases in vacancy rates and the
resulting impact on the Company's revenue, and risks associated with refinancing
the Company's current debt obligations or obtaining new financing under terms as
favorable as the Company has experienced in prior periods.
The Company, through affiliates, holds 50% interests in the owners of (i) an
outlet center in Oxnard, CA, (ii) an outlet center in New River, AZ and (iii)
phase one of an outlet center in Bellport, NY. First mortgage loans on these
three properties have matured and are currently in default. To date, the holders
of the first mortgage loans on these properties have been unwilling to extend
the loans on terms acceptable to the Company. The holder of the first mortgage
loan on Phase I of the Bellport project has commenced an action in the Supreme
Court of the State of New York, County of Suffolk seeking foreclosure, the right
to appoint a receiver, and the right to pursue a deficiency judgment. There can
be no assurance that the holders of these mortgage loans will not seek, and
succeed in their attempts, to foreclose on these properties, have receivers
appointed, and obtain deficiency judgments against the Company. The Company
accounts for its ownership interests in these properties in accordance with the
equity method of accounting.
The Company, through affiliates, holds a 51% interest in the owner of Phases II
and III in an outlet center in Bellport, NY. The owner failed to make a $3,000
principal payment when due on November 1, 2000. The Company and the holder of
the first mortgage loan are currently in discussions regarding a modification of
the loan payment terms and an agreement by the lender to forebear from pursuing
remedies under the applicable loan documents. There can be no assurance that
such discussions will lead to a modification of the first mortgage loan or that
the first mortgage lender will not pursue its remedies under the loan documents.
The Company accounts for its ownership interests in this property in accordance
with the equity method of accounting. The payment of the amount due under the
loan has been guaranteed by the Company.
Prime/Estein Joint Venture Transaction
On August 6, 1999, the Company entered into an agreement (the "Prime/Estein
Joint Venture Agreement") to sell three factory outlet centers, including two
future expansions, to a joint venture (the "Venture") between an affiliate of
Estein & Associates USA, Ltd. ("Estein"), a real estate investment company, and
the Company. The Prime/Estein Joint Venture Agreement provided for a total
purchase price of $274,000, including (i) the assumption of approximately
$151,500 of first mortgage indebtedness, (ii) an $8,000 payment to the Company
for a ten-year covenant-not-to-compete (the "Covenant-not-to-Compete") and (iii)
a $6,000 payment to the Company for a ten-year licensing agreement (the
"Licensing Agreement") with the Venture to continue the use of the "Prime
Outlets" brand name. The Covenant-not-to-Compete and the Licensing Agreement are
collectively referred to as the "Deferred Income".
On November 19, 1999, the Company completed the initial installment of the
Prime/Estein Joint Venture Agreement consisting of the sale of Prime Outlets at
Birch Run to the Venture for aggregate consideration of $117,000, including a
$64,500 "wrap-around" first mortgage provided by the Company. In connection with
the sale of Prime Outlets at Birch Run, the Company received cash proceeds of
$33,303, net of transaction costs, and recorded a loss on the sale of real
estate of $9,326. Effective November 19, 1999, the Company commenced accounting
for its 30.0% ownership interest in Prime Outlets at Birch Run in accordance
with the equity method of accounting. The "wrap-around" first mortgage provided
by the Company to the Venture has a ten-year term at a fixed interest rate of
7.75% requiring monthly payments of principal and interest pursuant to a 25-year
amortization schedule. The Company's net investment in the "wrap-around" first
mortgage as of September 30, 2000 and December 31, 1999 was $10,733 and $10,745,
respectively, which is included in other assets in the Consolidated Balance
Sheet. Additionally, the Venture assumed $53,755 of outstanding mortgage
indebtedness. Included in the aggregate consideration was $8,500 of Deferred
Income. The Deferred Income is included in accounts payable and other
liabilities in the Consolidated Balance Sheet and is being amortized into other
income over its ten-year life.
During the fourth quarter of 1999, the Company recorded a loss on the sale of
real estate of $5,827 related to the write-down of the carrying value of Prime
Outlets at Williamsburg based on the terms of the Prime/Estein Joint Venture
Agreement. On February 23, 2000, the Company completed the second installment of
the Prime/Estein Joint Venture Agreement consisting of the sale of Prime Outlets
at Williamsburg to the Venture for aggregate consideration of $59,000, including
(i) the assumption of mortgage indebtedness of $32,500 and (ii) $2,750 of
Deferred Income. In connection with the sale of Prime Outlets at Williamsburg,
the Company received (i) cash proceeds of $11,063, net of transaction costs, and
(ii) a promissory note in the amount of $10,000 from the Venture (of which
Estein's obligation is $7,000). The promissory note requires the monthly payment
of interest in arrears at an annual rate of 7.75% and the outstanding principal
amount is payable on or before December 15, 2000. If the Company fails to
refinance or convert the Venture's mortgage indebtedness of $32,500 to a
permanent loan at a fixed rate of interest, the December 15, 2000 maturity date
of the $10,000 promissory note will be extended until such time as such
refinancing or conversion has been obtained. In addition, if the refinancing or
conversion does not occur on or before December 15, 2000, the Company will be
obligated to pay Estein $250 and the Company will not be entitled to receive
operating distributions arising out of Prime Outlets at Williamsburg until such
refinancing or conversion occurs.
Under the Prime/Estein Joint Venture Agreement, as amended, the outside closing
date for the sale of Prime Outlets at Hagerstown, including an expansion which
opened during 2000 (together, the "Hagerstown Center"), was August 31, 2000.
Estein terminated the Prime/Estein Joint Venture Agreement as it applied to the
sale of the Hagerstown Center when the closing did not occur by the specified
closing date.
In connection with the discontinuance of the proposed sales of a 70% joint
venture interest in (i) the Hagerstown Center and (ii) a proposed expansion to
Prime Outlets at Williamsburg (the "Williamsburg Expansion"), the Company
reduced the carrying value of the Deferred Income by $9,550 and incurred other
charges aggregating $1,100 during the third quarter of 2000. The reduction in
the Deferred Income is attributable to the remaining proceeds that will not be
received as a result of the termination of the Prime/Estein Joint Venture
Agreement. The $1,100 of other charges include (i) a $600 fee payable to Estein
resulting from failure to close the sale of the Hagerstown Center on or before
August 31, 2000 and (ii) a $500 fee payable to Estein for non-completion of the
Williamsburg Expansion by December 15, 2000, which the Company will not meet.
As of September 30, 2000, the Company reclassified $61,908 representing the
aggregate carrying value of the Hagerstown Center from assets held for sale to
investment in rental property in the Consolidated Balance Sheet. In connection
with the reclassification, the Company recorded $1,967 of depreciation and
amortization expense related to the Hagerstown Center for the period from
January 1 through September 30, 2000 in the third quarter of 2000.
As of December 31, 1999, the Company classified $97,639 representing the
aggregate carrying value of Prime Outlets at Williamsburg and Prime Outlets at
Hagerstown as assets held for sale in its Consolidated Balance Sheet.
The Venture has agreed to retain the Company as its sole and exclusive managing
and leasing agent for a property management fee equal to 4.0% of gross rental
receipts. The Venture also will pay a monthly asset management and partnership
administration fee to an affiliate of Estein equal to 3.0% of the monthly net
operating income from the centers.
Commitments and Contingencies
The Company was required, pursuant to a real estate purchase agreement and two
ground leases in which it is the ground lessee, to purchase for $6,809 the
unowned 50% interests in parcels of land underlying Phases III and IV of Prime
Outlets at Gilroy in Gilroy, California. The Company did not close on the
scheduled closing date. The seller has several rights and remedies under the
relevant documents, including amending the base rent under the ground leases,
amending the purchase price, and seeking specific performance. On August 9, 2000
the seller notified the Company that it has exercised its right under the
relevant documents to require the Company to close within 180 days. The seller
also reserved its other remedies under the relevant documents. The seller does
not have the right to terminate the ground leases as a remedy. On August 29,
2000, the seller brought an action in the Superior Court of California, County
of Santa Clara alleging breach of contract and seeking the declaratory relief
and compensatory damages.
Development
Prime Outlets of Puerto Rico, the first outlet center in Puerto Rico, which
contains 176,000 square feet of GLA, opened on July 27, 2000. Additionally, the
Company opened two expansions aggregating 166,000 square feet of GLA at Prime
Outlets at Hagerstown in March and April 2000. Furthermore, the Company opened
two expansions aggregating 48,000 square feet at Prime Outlets at San Marcos in
May of 2000. At September 30, 2000, the remaining expected capital expenditures
for these projects aggregated $8,251.
Although the Company expects to fund the remaining development cost of these
projects from (i) retained cash flow from operations, (ii) construction loans,
(iii) the Debt Financing Transaction, and (iv) the potential sale of certain
properties, there can be no assurance that the Company will be successful in
obtaining the required amount of money to fund the remaining development costs.
Economic Conditions
Most 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. Most of the 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.
Recently Issued Accounting Standards
In June 2000, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," which amends SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133 was
previously amended by SFAS 137 "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement 133,"
which deferred the effective date of SFAS 133 to fiscal years beginning after
June 15, 2000. The Company expects to adopt SFAS 138 and SFAS 133 effective
January 1, 2001. SFAS 133 and SFAS 138 will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be recognized
immediately in earnings. The Company does not anticipate a material impact on
its results of operations and financial position.
In December 1999, the Securities and Exchange Commission (the "Commission")
issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements." SAB 101 summarizes certain of the Commission's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. In June 2000, the Commission issued SAB 101B to defer the
effective date of implementation of SAB 101 to the fourth quarter of 2000. The
Company does not anticipate a material impact on its results of operations and
financial position.
Funds from Operations
Industry analysts generally consider Funds from Operations, as defined by the
National Association of Real Estate Investment Trusts ("NAREIT"), an alternative
measure of performance of an equity REIT. In October 1999, NAREIT issued a new
white paper statement and redefined how funds from operations is calculated,
effective January 1, 2000. Funds from Operations is now defined by NAREIT as net
income (loss) determined in accordance with GAAP, excluding gains (or losses)
from sales of depreciable operating property, plus depreciation and amortization
(other than amortization of deferred financing costs and depreciation of
non-real estate assets) and after adjustment for unconsolidated partnership and
joint ventures.
Management believes that FFO is an important and widely-used measure of the
operating performance of REITs which provides a relevant basis for comparison to
other REITs. Therefore, FFO is presented to assist investors in analyzing the
performance of the Company. The Company's FFO is not comparable to FFO reported
by other REITs that do not define the term using the current NAREIT definition
or that interpret the current NAREIT definition differently than does the
Company. Therefore, the Company cautions that the calculation of FFO may vary
from entity to entity and as such the presentation of FFO by the Company may not
be comparable to other similarly titled measures of other reporting companies.
The Company believes that in order to facilitate a clear understanding of its
operating results, FFO should be examined in conjunction with net income
determined in accordance with GAAP. FFO does not represent cash generated from
operating activities in accordance with GAAP and should not be considered as an
alternative to net income as an indication of the Company's performance or to
cash flows as a measure of liquidity or ability to make distributions.
TABLE 6 provides a reconciliation of income before allocations to minority
interests and preferred shareholders to FFO for the three and nine months ended
September 30, 2000 and 1999. FFO decreased $12,339, or 47.0%, to $13,893 for the
three months ended September 30, 2000 from $26,232 for the three months ended
September 30, 1999. FFO decreased $45,094, or 55.6%, to $35,977 for the nine
months ended September 30, 2000 from $81,071 for the nine months ended September
30, 1999.
The 2000 FFO results include the following non-recurring items: (i) a second
quarter provision for asset impairment of $8,538 for two of the Company's
properties in accordance with the requirements of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of", (ii) severance and other
compensation costs aggregating $2,421 ($671 in the second quarter), (iii) second
quarter professional fees of $1,455, (iv) a first quarter gain on the sale of
outparcel land in Camarillo, CA. of $2,471 (v) third quarter costs aggregating
$1,100 incurred in connection with the previously announced discontinuance of
the sale of a 70% joint venture interest in Prime Outlets at Hagerstown,
including an expansion which opened during 2000, and a proposed expansion to
Prime Outlets at Williamsburg. Excluding these non-recurring items, FFO was
$14,993, for the three months ended September 30, 2000, and $47,020 for the nine
months ended September 30, 2000.
The change in FFO for the three and nine months ended September 30, 2000
compared to the same periods in 1999 is primarily attributable to the following
factors:
o the loss of net operating income offset by decreased interest expense due
to the sale of a 70% joint venture interest in Prime Outlets at Birch Run
in November 1999 and Prime Outlets at Williamsburg in February 2000;
o reduced occupancy in the outlet center portfolio (91.2% and 91.0% for the
three and nine months ended September 30, 2000, respectively, compared to
93.1% and 93.3% for the three and nine months ended September 30, 1999,
respectively);
o higher interest expense resulting from increased short-term indebtedness
and higher financing costs;
o increased corporate general and administrative expenses attributable to
lower capitalization of overhead costs due to reduced development
activities;
o an increase in the provision for uncollectible accounts receivable
resulting in part from certain tenant bankruptcies and abandonments.
<PAGE>
TABLE 6 -- Funds from Operations
--------------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
----------------- ----------------
2000 1999 2000 1999
--------------------------------------------------------------------------------
Income (loss) before minority interests $(4,351) $6,452 $(31,797) $23,427
FFO adjustments:
Depreciation and amortization 17,679 19,344 49,699 56,168
Unconsolidated joint venture adjustments 915 473 2,629 902
Non-real estate depreciation and (500) (156) (1,068) (433)
amortization -------- ------ ------- ------
FFO before discontinued operations 13,743 26,113 19,463 80,064
Discontinued operations - eOutlets.com 424 - 14,703 -
Discontinued operations - Designer
Connection (274) 119 1,811 1,007
-------- ------ ------- ------
FFO before allocations to minority
interests and preferred shareholders $ 13,893 $26,232 $35,977 $81,071
======== ====== ======= =======
================================================================================
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
On October 13, 2000 and thereafter, various complaints were filed in the United
States District Court for the District of Maryland against Prime Retail, Inc.
(the "Company") and four individual defendants. The four individual defendants
are: William H. Carpenter, Jr., the former President and Chief Operating Officer
and a current director of the Company; Abraham Rosenthal, the former Chief
Executive Officer and a director of the Company; Michael W. Reschke, the former
Chairman of the Board and a current director of the Company; and Robert P.
Mulreaney, the former Executive Vice President, Chief Financial Officer and
Treasurer of the Company. The complaints were brought by alleged stockholders of
the Company, individually and purportedly as class actions on behalf of all
other stockholders of the Company. The complaints allege that the individual
defendants made statements about the Company that were in violation of the
federal securities laws. The complaints seek unspecified damages and other
relief. The Company believes that the complaints are without merit and intends
to defend them vigorously. The outcome of these lawsuits, and the ultimate
liability of the defendants, if any, cannot be predicted.
The Company and its affiliates were defendants in a lawsuit filed on August 10,
1999 in the Circuit Court for Baltimore City and removed to U. S. District Court
for the District of Maryland (the "U.S. District Court") on August 20, 1999. The
plaintiff alleged that the Company and its related entities overcharged tenants
for common area maintenance charges and promotion fund charges. The U.S.
District Court dismissed the lawsuit on June 19, 2000. The plaintiff has filed a
notice of its appeal from the U.S. District Court's decision. Management
believes that the Company has acted properly and intends to defend this lawsuit
vigorously. While any litigation contains an element of uncertainty, the Company
believes the losses, if any, resulting from this case will not have a material
adverse effect on the consolidated financial statements of the Company.
Several entities (the "Plaintiffs") have filed or stated an intention to file
lawsuits (the "Lawsuits") against the Company and its affiliates in which the
Plaintiffs are seeking to hold them responsible under various legal theories for
liabilities incurred by primeoutlets.com, inc., also known as eOutlets,
including the theory that the Company guaranteed the obligations of eOutlets and
the theory that the Company was the alter ego of eOutlets. Primeoutlets.com,
inc. is also a defendant in some, but not all, of the Lawsuits. The Company
believes that it is not liable to the Plaintiffs as there was no privity of
contract between it and the various Plaintiffs. The Company intends to defend
all Lawsuits vigorously. In the case captioned Convergys Customer Management
Group, Inc. v. Prime Retail, Inc. and primeoutlets.com, inc., currently pending
in the Court of Common Pleas for Hamilton County (Ohio), the Company prevailed
in a motion to dismiss Plaintiff's claim that the Company was liable for
primeoutlets.com, inc.'s breach of contract based on the doctrine of piercing
the corporate veil. The outcome of these Lawsuits, and the ultimate liability of
the Company, if any, cannot be predicted. While any litigation contains an
element of uncertainty, the Company believes the losses, if any, resulting from
the Lawsuits will not have a material adverse effect on the consolidated
financial statements of the Company.
The New York Stock Exchange and the Securities and Exchange Commission have
notified the Company that they are reviewing transactions in the stock of the
Company prior to the Company's January 18, 2000 press release concerning
financial matters.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
As a result of its financial results for the quarters ended December 31, 1999,
March 31, 2000, June 30, 2000 and September 30, 2000, the Company is not in
compliance with financial covenants contained in certain credit facilities. The
Company is currently in arrears in the payment of distributions on its 10.5%
Series A Senior Cumulative Preferred Stock ("Senior Preferred Stock") and 8.5%
Series B Cumulative Participating Convertible Preferred Stock ("Series B
Convertible Preferred Stock"). As of September 30, 2000, the aggregate arrearage
on the Senior Preferred Stock and the Series B Convertible Preferred Stock was
$5,283 and $14,556, respectively.
<PAGE>
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/A:
Exhibit 10.1 Employment Agreement dated June 11, 2000 between the Company
and Robert A. Brvenik
Exhibit 10.2 Employment Agreement dated May 3, 2000 between the Company and
C. Alan Schroeder
Exhibit 12.1 - Ratio of Earnings to Fixed Charges and Preferred Stock
Distributions and Dividends
Exhibit 27.1 - Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K:
None
<PAGE>
Item 7A. 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, excluding acceleration
provisions. Variable interest rates are based on the weighted average rates of
the portfolio at September 30, 2000.
<TABLE>
Year of Maturity
------------------------------------------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 Thereafter Total
------------------------------ ------------ ----------- ----------- ----------- ------------ ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate:
Principal...................... $27,228 $ 36,668 $46,529 $348,761 $17,049 $56,402 $395,505 $928,163
Average interest rate.......... 13.71% 8.02% 7.04% 7.76% 7.75% 6.98% 7.11% 7.58%
Variable rate:
Principal...................... $27,175 $210,633 $ 637 $ 1,152 $46,765 - - $286,362
Average interest rate.......... 9.46% 9.13% 8.12% 8.12% 8.12% - - 8.99%
====================================================================================================================================
</TABLE>
<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: December 15, 2000 /s/ Robert A. Brvenik
----------------- ---------------------
Robert A. Brvenik
Executive Vice President,
Chief Financial Officer
and Treasurer
