Ailing Prime Retail weighs radical cures to its slide

Options include sale of all or part of firm

Real estate

January 21, 2000|By Eileen Ambrose | Eileen Ambrose,SUN STAFF

Executives of cash-strapped Prime Retail Inc. said yesterday that they are considering selling the company or some of its assets, breaking it in two or buying back stock to reverse the real estate investment trust's fortunes.

On a conference call, Chairman Michael Resche said the Baltimore company is weighing all its options but has not hired any investment bank to help with a potential sale.

He would not comment on whether the world's largest owner, manager and developer of retail outlets had been approached by a potential buyer.

"We're moving as expeditiously as possible. Time is critical," Resche said.

Analyst David Fick, with Legg Mason Wood Walker Inc. in Baltimore, said the company may have a few nibbles already.

"There is a possibility that you could see a major change in the ownership of a lot of these assets or the company in the fairly near-term future," said Fick.

The conference call was a follow up to Tuesday's announcement that Prime Retail was lowering its earning estimates this year because of declining occupancy at some of its low-end properties, as well as increases in interest and marketing costs.

Also on Tuesday, Prime Retail said it was suspending its quarterly common stock dividends this year, although a distribution would be made in the fourth quarter so the company could maintain its status as a real estate investment trust. The company's stock plunged nearly 37 percent on the news.

As a REIT, Prime Retail can avoid taxes if it pays more than 95 percent of its net income to shareholders. The dividends often are what lure investors to the stock.

Last year, Prime Retail paid dividends equal to $1.18 per common share. In yesterday's conference call, executives said they anticipate paying out $10 million in common stock dividends in the fourth quarter, or 20 cents per share.

Even before Tuesday's announcement, investors had been bailing out of the stock. A week ago, analyst Fick issued a negative report, blaming problems with some of Prime Retail's low-end properties. Fick said the company was at risk of losing 25 percent of its leases up for renewal.

Prime Retail operates 51 outlet centers in 26 states.

Chief Executive Officer Abraham Rosenthal said yesterday that the occupancy levels at the outlets stood at 93.5 percent at the end of last year. This year it's expected to drop to 90 percent.

"Our goal is to return to mid-90s occupancy within the next 12 to 15 months," he said.

Twenty outlets are having trouble. They are small, have stiff competition or haven't been able to snag a lead tenant that could draw shoppers from a greater distance, the executives said.

The company plans to spend $3 million to upgrade the physical appearance of weaker centers and $4 million on marketing the centers to boost occupancy levels.

Resche said the company also is watching the sale of low-end centers now on the market to see if the prices are strong enough for Prime Retail to consider selling the bottom 10 or 15 centers in its portfolio.

The company is even considering finding an alternative use for some outlets, such as a community center.

Prime Retail's stock closed yesterday at $2.50, up 6.25 cents per share.

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