Prime Retail shares tumble

Company's large debt could pose threat to shareholder dividend

Retail outlets

January 15, 2000|By Robert Little | Robert Little,SUN STAFF

Shares in Baltimore-based Prime Retail Inc. fell 25 percent yesterday after a negative report from a key analyst and amid speculation that the company will reduce its shareholder dividend because of a continuing shortage of cash.

Prime Retail, the largest owner, manager and developer of retail outlets in the world, has been burdened with heavy debt from recent acquisitions. Its shares dropped $1.375 to $4.125 on New York Stock Exchange trading of 2.97 million shares, 18 times the three-month daily average.

Last year, the company paid dividends equal to $1.18 per share of common stock. Its next dividend payment is expected to be announced soon, and there was speculation yesterday that the company's heavy debt will eat into future disbursements.

"People are probably worried about the dividend," said David H. Tannehill, a Morgan Keegan Inc analyst. "They have a lot of debt leverage, and I don't think they have a lot of prospects for reducing that any time soon."

Also yesterday, Legg Mason Wood Walker Inc. analyst David M. Fick lowered his rating on the company from "market perform" to Legg's lowest rating of "underperform" because of similar concerns.

Fick suggested that Prime Retail has neglected some of its low-end properties and is at risk of losing 25 percent of its leases up for renewal. Those factors could put further burden on the company's shortage of cash, he said.

"We have been surprised by how little awareness there appeared to be at the management level" regarding operational problems at "lower-tier" properties, Fick wrote in his report.

"The dividend yield has been the prime case for investing in Prime Retail's shares over the past year," Fick also wrote. "If it is forced to cut the dividend, no matter what the reason, what faith will shareholders be able to have in management, especially given the lapses we have identified in running its daily business?"

Officials at Prime Retail did not return telephone calls yesterday.

Using the trade name Prime Outlets, Prime Retail operates 51 outlet centers in 26 states. It owns 27 percent of all outlet space in the United States. The company is a real estate investment trust, allowing it to avoid taxes if it pays more than 95 percent of its net income to shareholders. Investors are often most attracted to the stock because of the dividend.

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