Prime Retail, Inc. Reports Second Quarter 2002 Funds From Operations of $2.3 Million; Company Updates Status of Going Concern Issues
PR NEWSWIRE - August 14, 2002 17:53
BALTIMORE, Aug 14, 2002 /PRNewswire-FirstCall via COMTEX/ -- Prime Retail, Inc. (OTC Bulletin Board: PMRE, PMREP, PMREO) (the "Company") today announced its operating results for the second quarter ended June 30, 2002.
FFO Results:
Funds from Operations ("FFO") was $2.3 million, or $(0.08) per diluted share (after allocations to minority interests and preferred shareholders) for the quarter ended June 30, 2002 compared to $7.1 million, or $0.03 per diluted share, for the same period in 2001. FFO was $9.2 million, or $(0.05) per diluted share for the six months ended June 30, 2002 compared to $14.4 million, or $0.06 per diluted share, for the same period in 2001.
The decrease in FFO and FFO per diluted share for the quarter and six months ended June 30, 2002 compared to the same periods in 2001 is primarily due to (i) a loss in net operating income, partially offset by interest expense savings, resulting from dispositions of properties, (ii) reduced occupancy in the Company's portfolio during the 2002 periods, (iii) economic changes in rental rates and (iv) a second quarter non-recurring charge of $3.0 million for pending and potential tenant claims with respect to lease provisions related to pass-through charges and promotional fund charges.
The following eight operating properties were disposed of during 2001 and through June 30, 2002:
Property Name Date of Disposition Northgate Plaza February 2, 2001 Prime Outlets at Silverthorne March 16, 2001 Prime Outlets at New River May 8, 2001 Prime Outlets at Conroe January 1, 2002 Prime Outlets at Hagerstown January 11, 2002 Prime Outlets at Edinburgh April 1, 2002 Phases II & III of Bellport Outlet Center April 19, 2002 The Shops at Western Plaza June 17, 2002
GAAP Results:
Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards ("FAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." In accordance with the requirements of FAS No. 144, the Company has classified the operating results, including gains and losses related to dispositions, for those properties either disposed of or classified as assets held for sale during 2002 as discontinued operations in its Consolidated Statements of Operations for all periods presented.
In accordance with accounting principles generally accepted in the United States ("GAAP"), the GAAP loss from continuing operations before minority interests was $20.5 million and $6.0 million for the quarters ended June 30, 2002 and 2001, respectively. For the quarter ended June 30, 2002, the net loss applicable to common shareholders was $35.9 million, or $0.82 per common share on a basic and diluted basis. For the quarter ended June 30, 2001, the net loss applicable to common shareholders was $12.5 million, or $0.29 per common share on a basic and diluted basis.
The GAAP results for the quarter ended June 30, 2002 include (i) a non- recurring loss on the sale of real estate of $0.7 million, or $0.02 per share, attributable to the sale of an ownership interest in a joint venture partnership, (ii) the aforementioned non-recurring charge of $3.0 million, or $0.07 per share, and (iii) a non-recurring provision for asset impairment on two properties of $12.2 million, or $0.28 per share. During the quarter ended June 30, 2002, the Company also reported a loss from discontinued operations of $9.7 million, or $0.22 per share, including a net loss related to dispositions of $8.2 million, or $0.19 per share. The net loss on dispositions consists of (i) a loss of $10.3 million to write-down the carrying value of six outlet centers to their estimated net realizable value based on the terms of a sales agreement, partially offset by (ii) a gain of $2.1 million related to the sale of the Shops at Western Plaza.
The GAAP results for the quarter ended June 30, 2001 include a non- recurring loss of $0.2 million related to the sale of a property. During the quarter ended June 30, 2001, the Company also reported a loss on discontinued operations of $1.2 million, or $0.03 per share.
The GAAP loss from continuing operations before minority interests was $25.0 million and $10.4 million for the six months ended June 30, 2002 and 2001, respectively. For the six months ended June 30, 2002, the net loss applicable to common shareholders was $39.8 million, or $0.91 per common share on a basic and diluted basis. For the six months ended June 30, 2001, the net loss applicable to common shareholders was $23.8 million, or $0.55 per common share on a basic and diluted basis.
The GAAP results for the six months ended June 30, 2002 include the above noted second quarter non-recurring losses and charges aggregating $15.9 million, or $0.37 per share. During the six months ended June 30, 2002, the Company also reported a loss from discontinued operations of $3.5 million, or $0.08 per share, including a net loss related to dispositions of $1.0 million. The net loss on dispositions during the six months ended June 30, 2002 consists of (i) a first quarter gain of $16.8 million on the sale of a 70% joint venture interest in Prime Outlets at Hagerstown (the "Hagerstown Center"), (ii) a first quarter loss of $9.6 million related to the write-down of the carrying value of Prime Outlets at Edinburgh to its net realizable value based on the terms of a sales agreement and (iii) the above noted second quarter net loss on dispositions of $8.2 million.
The GAAP results for the six months ended June 30, 2001 included a non- recurring gain on the sale of real estate of $0.6 million, or $0.01 per share, resulting from the sale of three properties. During the six months ended June 30, 2001, the Company also recorded a loss from discontinued operations of $2.5 million, or $0.06 per share.
Merchant Sales:
Same-store sales in the Company's outlet centers decreased by 3.6% and 2.7%, respectively, for the second quarter ended and six months ended June 30, 2002 compared to the same periods in 2001. "Same-store sales" is defined as the weighted-average sales per square foot reported by merchants for stores opened and occupied since January 1, 2001. For the fiscal year ended December 31, 2001, the weighted-average sales per square foot reported by all merchants was $241.
Going Concern:
As previously announced, under the terms of a modification to its mezzanine loan (the "Mezzanine Loan") completed on January 31, 2002, the Company is required to make mandatory principal payments with net proceeds from asset sales, excluding the January 11, 2002 sale of a 70% interest in the Hagerstown Center, or other capital transactions, of not less than (i) $8.9 million by May 1, 2002, (ii) $24.4 million, inclusive of the $8.9 million, by July 1, 2002 and (iii) $25.4 million, inclusive of the $24.4 million, by November 1, 2002. The July 1, 2002 deadline could be extended to October 31, 2002 provided certain conditions were met to the lender's satisfaction. Through June 30, 2002, the Company has made mandatory principal payments aggregating $10.3 million.
On July 1, 2002, the Mezzanine Loan lender elected to extend the July 1, 2002 mandatory principal payment due date to the earlier of (i) August 15, 2002 (the "Extended Date") or (ii) the occurrence of an event of default under the Mezzanine Loan. Additionally, upon satisfaction of certain conditions, the Extended Date can be automatically extended again to the earlier of (i) October 31, 2002, (ii) the occurrence of an event of default under the Mezzanine Loan, or (iii) the closing or termination of certain asset sales. There can be no assurance that these conditions will be met.
Although the Company continues to seek to generate additional liquidity through new financings and the sale of assets, there can be no assurance that it will be able to complete asset sales or other capital transactions within the specified periods or that such asset sales or other capital transactions, if they should occur, will generate sufficient proceeds to make the remaining mandatory payments of $15.0 million due in 2002 under the Mezzanine Loan. Any failure to satisfy these mandatory principal payments within the specified time periods will constitute a default under the Mezzanine Loan.
Based on the Company's results for the three months ended June 30, 2002, it is not in compliance with respect to the debt service coverage ratio under its fixed rate tax-exempt revenue bonds (the "Affected Fixed Rate Bonds") in the amount of $18.4 million. As a result of the such noncompliance, 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. If the holders of the Affected Fixed Rate Bonds make such an election and the Company is unable to repay such obligations, certain cross-default provisions with respect to other debt facilities, including the Mezzanine Loan may be triggered.
The Company is working with holders of the Affected Fixed Rate Bonds regarding potential resolution, including waiver or amendment with respect to the applicable provisions. If the Company is unable to reach satisfactory resolution, it will look to (i) obtain alternative financing from other financial institutions, (ii) sell the projects subject to the affected debt or (iii) explore other possible capital transactions to generate cash to repay the amounts outstanding under such debt. There can be no assurance that the Company will obtain satisfactory resolution with the holders of the Affected Fixed Rate Bonds or that it will be able to complete asset sales or other capital raising activities sufficient to repay the amount outstanding under the Affected Fixed Rate Bonds.
As of June 30, 2002, the Company was in compliance with all financial debt covenants under its recourse loan agreements other than the Affected Fixed Rate Bonds. Nevertheless, there can be no assurance that the Company will remain in compliance with its financial debt covenants in future periods because its future financial performance is subject to various risks and uncertainties, including, but not limited to, the effects of current and future economic conditions, and the resulting impact on its revenue; the effects of increases in market interest rates from current levels; the risks associated with existing vacancy rates or potential increases in vacancy rates because of, among other factors, tenant bankruptcies and store closures, and the resulting impact on its revenue; risks associated with litigation, including pending and potential tenant claims with respect to lease provisions related to their pass-through charges and promotional fund charges; and risks associated with refinancing its current debt obligations or obtaining new financing under terms less favorable than the Company has experienced in prior periods.
These above listed conditions raise substantial doubt about the Company's ability to continue as a going concern. |
