Shake-up at Prime Retail

Founder's brother reportedly replacing COO who gets new job

Real estate

September 29, 1999|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Prime Retail Inc. is preparing a senior management shake-up in which its president will step down to lead a new online shopping venture that the Baltimore outlet center owner is developing, sources said yesterday.

William H. Carpenter Jr., Prime Retail's president and chief operating officer for more than a decade, will leave his position to head an Internet service subsidiary that the real estate investment trust hopes will boost merchant sales and attract new customers.

Carpenter will be replaced by Glenn D. Reschke, a Prime Retail executive vice president in charge of development who is the brother of company founder Michael W. Reschke, sources said.

Although a formal announcement could come as early as next week, company officials declined to comment on any changes yesterday.

"I've been heavily involved with our Internet venture," Carpenter said. "As a public company, we haven't made any announcement regarding management, and I wouldn't be able to comment."

Although Prime Retail does not have a launch date for its Internet project, the company this summer committed to a short-term, high-interest $40 million line of credit that will provide the venture with capital.

"We believe there's a synergy there, and I would be remiss as president of this company if we weren't looking at ways to combine retail channels," Carpenter said.

Neither Reschke nor Prime Retail Chief Executive Officer Abraham Rosenthal could be reached for comment.

"What it says to me is that they are rationalizing for a new reality and that very little development will take place in the coming months or years," said David M. Fick, a principal and senior analyst at Legg Mason Wood Walker Inc. who follows Prime Retail.

"It also tells me they have an honest commitment to a venture I find speculative," Fick said. "Online shopping is a huge gamble for them, but they must believe they have something special."

However, Fick and other analysts said Reschke will make a solid leader and that the Internet venture is a risk worth taking.

"Glenn Reschke is viewed with respect on [Wall] Street," Fick said. "He's earned his stripes, and it'll simplify the organization a little bit."

Said Charles Post, a Friedman, Billings, Ramsey analyst in Virginia who tracks Prime Retail: "They'll potentially pick up some incremental business online, and it's an extension of what they're doing now. I'd be surprised if they weren't doing something in that direction."

The anticipated senior management shake-up comes amid a whirlwind of events. This month, the factory outlet center mall owner announced a joint venture with New York-based Athena Group LLC to develop as much as $500 million in European projects by 2004.

The European venture announcement came on the heels of a mid-August deal to sell a majority stake in three of its outlet malls to a German company for $274 million.

Prime Retail, the world's largest owner of outlet centers, also plans to begin operating in its projects a chain of stores featuring designer merchandise. Designer Connections will be unveiled next month.

Prime Retail's moves are intended to increase liquidity at a time when every real estate investment trust's ability to secure capital has been hampered by glutted markets and floundering sales. The lack of capital has not only stymied Prime Retail's plans for development, but contributed to the management changes as well, sources said.

Two years ago, for instance, the company was either building or expanding three projects annually, adding 1 million square feet a year to its portfolio. But without new capital, the company has been forced to scale back and focus almost exclusively on expansions, leaving Glenn Reschke with limited responsibilities.

Today, the REIT's portfolio contains 50 projects totaling 14.4 million square feet.

Since January, the REIT's common stock price has dropped nearly 60 percent, from $10.25 per share to about $6.50 per share. Yesterday, the company's stock closed at $6.5625 per share.

Carpenter said Prime Retail's stock slide may be attributed to outstanding debt set to mature soon. Tomorrow, Prime Retail faces a deadline to redeem $43.6 million of preferred stock. In November, a $39 million credit line comes due.

In all, Prime Retail carries about $1.3 billion in debt, most of which it obtained to finalize its $1 billion purchase of a Michigan outlet mall owner in June 1998. Analysts contend that the more than 60 percent debt-to-market capitalization ratio has constrained the company's financial flexibility.

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