Revival in store for malls' owner?

Outlets: After a close call with bankruptcy, Prime Retail Inc. has bought time to regroup with a deal to sell four centers and obtain loans. But it will have to attempt its comeback amid tough economic conditions.

April 01, 2001|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Just past noon on a recent Friday, shoppers jammed the Tommy Hilfiger Company Store at Prime Outlets Hagerstown. They darted toward racks marked with red lines -- half off lowest ticketed price -- and loaded up on shirts, jackets and pants, all stamped with the ubiquitous red, white and blue Tommy logo.

Glenn D. Reschke scooped up a blue flannel shirt, then a jacket for his wife, and compared notes with the couple behind him in line. Pleased with his bargains, Reschke was happier still about everyone else's.

For Reschke, head of the world's largest owner of factory outlet malls, the future rides on getting customers to line up and spend, now more than ever.

After narrowly avoiding a slide into bankruptcy last year, Baltimore-based Prime Retail Inc. has bought itself much-needed time to regain its footing, with a deal to sell four of its centers and obtain several loans.

"We need to repair and re-establish credibility and restore confidence," with investors, retailers and even employees, Reschke, Prime's chairman, president and chief executive officer since July, said during a visit to the Hagerstown outlet.

"Any time a company spends as long as we did with the threat of bankruptcy over its head, it shakes the confidence of everyone."

But rebuilding for the real estate investment trust comes at a trying time, with the economic slowdown prompting consumers to tighten spending and retailers to retrench.

That goes for the outlet industry, too, which because of saturation and competition from off-price chains such as Wal-Mart, has had flat or declining sales for the past two years at stores open at least a year.

"It's been very difficult," said Mark Millman, president of Lutherville-based Millman Search Group Inc., a national retail consulting and executive search business. "Prime is not out of the woods by any means."

Still, Prime has survived one of its worst years. Last year, it piled up debt and losses, store occupancies declined, and share values plunged. In the course of a year, the company changed top management, shut down its Internet subsidiary, closed a chain of company-run retail outlet stores, defaulted on a $20 million loan, dropped plans for a $110 million loan package and lowered expected results for fiscal 2000.

It reported a net loss of $9.2 million, or 21 cents per common share, for the third quarter, which ended Sept. 30, and funds from operations -- a key measure of a REIT's performance -- of $13.9 million, or 15 cents per diluted share.

Prime, which does not expect to pay a dividend this year on its common or preferred stock, has not said when it will report fourth-quarter results.

Debts wiped out

The late-December financing helped Prime end the year by wiping out $125 million in short-term debt.

The company says it has breathing room to be a landlord and focus on bringing in shoppers, upgrading tired centers, luring and retaining high-profile anchors and other retailers, and promoting its 46 outlet malls.

By the end of this year, Prime hopes to complete work on its outlet centers -- sprucing up facades and signs, repaving lots, remodeling restrooms and, where possible, adding "entertainment-oriented" draws such as restaurants or movie theaters.

Prime has also begun marketing centers individually rather than centrally, and aggressively recruiting tour groups and shoppers with special discounts. In a new marketing plan, Prime will give coupon books to all Kampgrounds of America card holders.

"It's our job to get the consumers here," Reschke said. "By the end of the year, we can say we're proud of how we look."

On the financial side, Prime is focusing on paying off its loans.

The package included a $90 million loan from Fortress Investment Fund LLC and Greenwich Capital Financial Products Inc., a $20 million first mortgage from Greenwich on the company's newest outlet center, in Puerto Rico, and a $10 million second mortgage from Mercantile-Safe Deposit and Trust Co. on the Hagerstown center.

Paying down the debt before the end of the three-year term would allow the company to restore its dividend, Reschke said.

"Our shareholders were hurt very badly and lost a lot of equity value, and my goal is to restore as much as we can," he said. "It won't come quickly or easily."

Saving the company has become a unifying cause for many of the 900 employees, at the Pratt Street headquarters and the centers, Reschke said. Restoring credibility, he said, will mean increasing sales at centers, meeting expectations over several quarters and, most likely, selling some centers or interests in centers, such as one in Silverthorne, Colo., that Prime sold for $29 million March 19.

All of that could be tough during an economic downturn, analysts said. Higher gasoline prices have time-pressed consumers thinking twice about driving to outlet malls when Target and Wal-Mart are close by and department stores run frequent sales.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.