Prime Retail, Inc. Reports Fourth Quarter 2001 Funds From Operations of $5.3 Million
Company Outlines Going Concern Issues
BALTIMORE, March 28 /PRNewswire-FirstCall/ -- Prime Retail, Inc. (OTC Bulletin Board: PMRE - news, PMREP - news, PMREO - news; the ``Company'') today announced its operating results for the fourth quarter ended December 31, 2001.
Quarter FFO Results:
Funds from Operations (``FFO'') was $5.3 million, or $(0.01) per diluted share after allocations to minority interests and preferred shareholders, for the quarter ended December 31, 2001 compared to $13.5 million, or $0.14 per diluted share, for the same period in 2000. FFO for the quarter ended September 30, 2001 was $5.5 million, or $0.00 per diluted share.
The decrease in FFO and FFO per diluted share for the fourth quarter of 2001 compared to the same period in 2000 is primarily due to (i) a loss in net operating income, partially offset by interest expense savings, resulting from sales of certain properties during the comparable periods, (ii) higher borrowing costs; iii) an increase in the provision for uncollectible accounts receivable of $1.4 million resulting in part from certain tenant bankruptcies, disputes, abandonments and store-closings and (iii) a reduction in average occupancy in the Company's outlet center portfolio (91.3% and 92.9% during the fourth quarters of 2001 and 2000 respectively). The Company sold four outlet centers on December 22, 2000 and two additional properties were sold during the first quarter of 2001. FFO for the third quarter of 2001 included a non- recurring loss of $1.0 million, or $0.02 per diluted share, related to the refinancing of first mortgage loans on Prime Outlets at Birch Run.
Full Year FFO Results:
FFO was $25.3 million, or $0.05 per diluted share, after allocations to minority interests and preferred shareholders, for the year ended December 31, 2001 compared to $58.0 million, or $0.65 per diluted share, for the same period in 2000. The FFO results for the year ended December 31, 2001 include a non-recurring loss of $1.0 million, or $0.02 per diluted share, related to the refinancing of first mortgage loans on Prime Outlets at Birch Run. The FFO results for the year ended December 31, 2000 included net non-recurring items totaling $(2.5) million, or $(0.05) per diluted share. Such non- recurring items included (i) severance and other compensation costs aggregating $2.4 million, (ii) professional fees of $1.5 million related to refinancing activities, and (iii) $1.1 million of transaction and construction termination costs; partially offset by a gain on the sale of outparcel land of $2.5 million. Excluding the net impact of these non-recurring items, FFO was $26.3 million, or $0.07 per diluted share, for the year ended December 31, 2001 and FFO was $60.5 million, or $0.70 per diluted share, for year ended December 31, 2000.
The decrease in FFO and FFO per diluted share for the year ended December 31, 2001 compared to the same period in 2000 is primarily due to (i) a loss in net operating income, partially offset by interest expense savings, resulting from sales of certain properties during the comparable periods; (ii) higher interest expense resulting from an increase in borrowing costs and reduced capitalization of interest on development projects; (iii) an increase in the provision for uncollectible accounts receivable of $5.9 million resulting in part from certain tenant bankruptcies, disputes, abandonments and store-closings and (iv) a reduction in average occupancy in the Company's outlet center portfolio during the comparable periods (90.3% and 91.6% during 2001 and 2000 respectively). In addition to the property sales previously mentioned, the Company also sold a 70% joint venture interest in Prime Outlets at Williamsburg during February, 2000.
GAAP Results:
In accordance with accounting principles generally accepted in the United States (``GAAP''), the GAAP loss before loss on sale of real estate and minority interests was $10.7 million and $64.5 million for quarters ended December 31, 2001 and 2000, respectively. The GAAP loss before loss on sale of real estate and minority interests was $97.4 million and $96.3 million for the years ended December 31, 2001 and 2000, respectively.
The GAAP results for 2001 include (i) a non-recurring provision for asset impairment of $63.0 million, (ii) a non-cash third quarter charge of $1.9 million related to an interest rate subsidy agreement on a joint venture's mortgage loan on Prime Outlets at Birch Run and (iii) a non- recurring third quarter loss of $1.0 million related to the refinancing of first mortgage loans on Prime Outlets at Birch Run.
During the third quarter of 2001, management determined that certain events and circumstances had occurred, including reduced occupancy and limited leasing success, that indicated that four of the Company's wholly owned properties were permanently impaired. As a result, the Company recorded a third quarter provision for asset impairment representing the write-down of the carrying value of these properties to their estimated fair value in accordance with the requirements of Statement of Financial Accounting Standards (``SFAS'') No. 21.
The GAAP results for 2000 include the following significant non-recurring items:
-- provisions for asset impairment aggregating $68.7 million ($60.1
million in the fourth quarter) representing the write-down of nine
properties, including the Company's investment in two joint venture
projects and land previously held for development, to their estimated
fair value in accordance with the with SFAS No. 121;
-- a loss of $14.7 million related to the discontinuance of the Company's
e-commerce subsidiary, primeoutlets.com inc., also know as
eOutlets.com;
-- third quarter transaction and construction termination costs
aggregating $1.1 million included in other charges;
-- general and administrative expenses consisting of severance and other
compensation costs aggregating $2.4 million through the first two
quarters;
-- second quarter professional fees included in general and administrative
expenses of $1.5 million related to refinancing activities;
-- a loss of $1.8 million related to the discontinuance of the Company's
Designer Connection retail outlet stores; and
-- a first quarter gain on the sale of outparcel land of $2.5 million
included in other income.
Merchant Sales:
Same-space sales in the Company's outlet centers increased (decreased) by 2.9% and (2.0)% for the fourth quarter and year ended December 31, 2001, respectively, compared to the same periods in 2000. ``Same-space sales'' is defined as the weighted-average sales per square foot reported by merchants for space opened and occupied since January 1, 2000. During the fourth quarter and years ended December 31, 2001, same-store sales decreased by 2.1% and 5.0%, respectively, compared to the same periods in 2000. ``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, 2000. For the fiscal year ended December 31, 2001, the weighted-average sales per square foot reported by all merchants was $241.
Going Concern:
The Company's liquidity depends on cash provided by its operations and potential capital raising activities such as funds obtained through borrowings, particularly refinancings of existing debt, and cash generated through asset sales. Although the Company believes that estimated cash flows from operations and potential capital raising activities will be sufficient to satisfy its scheduled debt service obligations and sustain our operations for the next year, there can be no assurance that it will be successful in obtaining the required amount of funds for these items or that the terms of the potential capital raising activities, if they should occur, will be as favorable as the Company has experienced in prior periods.
During 2002, the Company is required to make certain additional mandatory principal pay-downs on its mezzanine loan (the ``Mezzanine Loan'') aggregating $25.4 million from net proceeds from asset dispositions or other capital transactions within specified periods pursuant to the terms of a modification to the original terms of the Mezzanine Loan. Although the Company in the process of seeking to generate additional liquidity though new financings and the sale of assets, there can be no assurance that it will be able to complete asset dispositions or other capital transactions within the specified periods or that such asset dispositions or other capital transactions, if they should occur, will generate sufficient proceeds to make the additional mandatory pay- downs of the Mezzanine Loan. Any failure to satisfy these mandatory principal prepayments within the specified time periods will constitute a default under the Mezzanine Loan.
As of December 31, 2001, the Company was in compliance with all financial debt covenants under its recourse loan agreements. However, there can be no assurance that it will be in compliance with its financial debt covenants in future periods since its 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 its revenue, and risks associated with refinancing its current debt obligations or obtaining new financing under terms less favorable than it has experienced in prior periods.
Based on its current financial projections, the Company believes it will not be in compliance with respect to debt service coverage ratios under certain debt facilities during 2002. The debt facilities are fixed rate tax- exempt revenue bonds (the ``Affected Fixed Rate Bonds'') in the amount of $18.4 million and a recourse bridge loan (the ``Bridge Loan'') in the amount of $111.4 million. In the event of non-compliance, the holders of the Affected Fixed Rate Bonds may elect to put such obligations to the Company at a price equal to par plus accrued interest and the Bridge Loan lender may elect to accelerate its maturity. Additionally, noncompliance or defaults with respect to debt service coverage ratios under these debt facilities may trigger cross- default provisions with respect to other debt facilities, including the Mezzanine Loan.
The Company intends to meet with the affected lenders to discuss potential resolutions including waiver or amendment with respect to such non-compliance provisions. If the Company is unable to reach satisfactory resolution with the affected lenders, it will look to (i) obtain alternative financing from other financial institutions, (ii) sell the project or projects where non- compliance is likely to occur or (iii) explore other possible capital transactions in order to generate cash to repay the amounts outstanding under such debt facilities. There can be no assurance that the Company will obtain a satisfactory resolution with its affected lenders or that it will be able to complete asset sales or other capital raising activities sufficient to repay the amounts outstanding under such debt facilities. Should the Company be unable to secure additional sources of liquidity or reach satisfactory resolution with its lenders, there would be substantial doubt about the Company's ability to continue as a going concern. |
