CEO resigns at troubled Prime Retail

Analysts see move as likely to restore investor confidence

`He voluntarily' quit

President named acting replacement at Baltimore firm


February 29, 2000|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Prime Retail Inc.'s chief executive officer has stepped down, a move analysts expect will help restore investor confidence in the troubled, Baltimore-based company.

Abraham Rosenthal, a co-founder who helped shepherd Prime Retail's growth into the world's largest owner and operator of outlet malls, resigned effective Friday. Prime Retail's board of directors appointed Glenn D. Reschke, president and chief operating officer since Oct. 6, as acting chief executive officer.

Prime's shares, which dropped 42 percent last month as the company revealed the extent of its financial woes, closed yesterday at $2.1875, down 12.5 cents.

Analysts said they had been expecting a management shake-up since late January. That's when the real estate investment trust lowered projections for this year's earnings, blaming declining occupancy and net operating income at some of its low-end shopping centers, as well as higher interest and marketing costs. Prime also suspended its quarterly dividend to conserve cash to pay down debt and improve centers.

During a Jan. 20 conference call with investors, the company had outlined a turnaround strategy -- to start within a month -- that included exploring the sale of some assets and sprucing up some centers. But the company had made no further announcements before announcing the Rosenthal resignation Friday night.

Analysts expect the news to send investors a positive signal.

"Given what has occurred with the stock, it makes some sense to shuffle around the ranks of top management and give investors confidence that the board is seeking alternatives to enhance value, getting new insight and new management," said Bob Norfleet, a vice president at Richmond, Va.-based Davenport & Co. "The main issue facing Prime Retail is restoring credibility. They need to send a clear message to investors that management is doing all it can to deliver upon stated expectations. That means making drastic changes."

But the company said Rosenthal's departure is not linked to the company's turnaround plans.

The resignation "wasn't taken for that reason at all," Reschke said. "Mr. Rosenthal made a decision in which he voluntarily resigned."

The board will conduct an outside search, though it has not hired a search firm, said Reschke, who is a candidate. "I would welcome the opportunity," he said.

For now, his focus will be on proceeding with a two-pronged strategy -- "putting the company under sound financial footing through a series of announced asset sales and improving on what we do with our tenants in our centers by completing rehabilitations," he said.

The company has just closed one of those sales, announcing Sunday that it sold the second of three factory outlet centers -- Prime Outlets at Williamsburg, Va. -- to a joint venture between Prime and an affiliate of Estein & Associates USA Ltd., generating $11.1 million in cash. Prime will start making cosmetic improvements to at least a dozen of its 51 centers within a month, Reschke said. And the company is continuing to weigh options such as breaking up or selling the company.

Prime got its start in 1988, founded by former president and chief operating officer William H. Carpenter Jr. and Rosenthal, who became CEO in 1994. Rosenthal was viewed as a pioneer in the retail outlet industry, making it a viable alternative to full-price shopping with more upscale centers, said Mark Millman, president of Millman Search Group Inc., which represents tenants in Prime centers. But Rosenthal became an obvious target as top executive.

"It's probably unfair, because there are a lot of people involved, but somebody had to take the fall, and Abe was the person left running the company day to day," Millman said. "I still give the guy a lot of credit. There are many successful and significant retail outlet chains that owe, in part, their success to Abe Rosenthal and Prime Retail."

Prime's cash crunch stems mostly from the company's mid-1998 acquisition of the Horizon Group Inc., paid for with nearly $1 billion in debt. The purchase doubled the company's size but saddled it with debt and added weak, half-empty centers. Prime's debt stands at $1.3 billion.

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