Prime Retail revenue, income more than double Acquisition, pick up in leasing lift quarter

Commercial real estate

October 27, 1998|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Prime Retail Inc.'s earnings more than doubled in the third quarter of this year, the result of its acquisition of a Michigan company and increased leasing activity at its 50 factory outlet centers.

The Baltimore-based real estate investment trust reported yesterday that funds from operations -- a key gauge of a REIT company's financial performance -- totaled $27.2 million, a 145 percent gain from the same period in 1997.

On a fully diluted per share basis, the company's earnings for the three months that ended Sept. 30 totaled 38 cents, an increase of 26.7 percent. Revenue in the quarter rose 132 percent, to $73.2 million.

"It was a very good quarter," said Charles Post, a Friedman, Billings, Ramsey analyst who tracks Prime Retail. "Their occupancy is strong and their cost of occupancy is low, which should help them to raise rents as leases come up for renewal."

Prime Retail attributed the gains primarily to its nearly $1 billion acquisition in June of the Michigan-based Horizon Group Inc., which added 22 retail centers and made the company the largest outlet center mall owner in the world.

"We are very pleased to report that the accretive benefit of the Horizon transaction has, as expected, been both immediate and substantial," said Abraham Rosenthal, Prime Retail's chief executive.

Prime Retail also boosted its earnings as a result of increased leasing activity. In the first nine months of this year, the company executed 298 leases -- nearly double the amount from the same period in 1997 -- totaling 1.2 million square feet and carrying an average rent of $16.03 per square foot. In the first three quarters of 1997, leases totaled 590,000 square feet with an average rent of $15.40 per square foot. In all, Prime Retail's 14 million-square-foot portfolio is 96 percent leased.

During the first nine months of the year, Prime Retail generated funds from operations of $59.9 million, or $1.04 per share, an 87 percent gain from a year ago. Revenue increased 67 percent to $155.4 million.

But even as its numbers increased, Prime Retail's same-store sales fell by 2 percent during the first nine months of the year.

"That's the one negative I saw," Post said. "But it wasn't too surprising, 'cause July and August [were] down for just about everyone."

To combat the same-store sales decrease, Prime Retail has opened centers in Hagerstown and Lebanon, Tenn., and intends to expand centers in Hagerstown; Lodi, Ohio; and Ellenton, Fla., before the end of the year.

"We're always concerned when tenants decrease sales, but we don't think the decrease is that substantial," Rosenthal said. "Some of the decrease has to do with overseas tourism which had dropped off, but we're hopeful that will improve."

Pub Date: 10/27/98

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