Prime facing default on some loans

Borrowing costs, tenant bankruptcies, vacancies are felt

REIT's precarious position

Financial results down 60% in fourth quarter

March 30, 2002|By Gus G. Sentementes | Gus G. Sentementes,SUN STAFF

Prime Retail Inc., one of the largest outlet mall owners in the country, believes that it will be in default of some of its loans this year after tenant bankruptcies, higher borrowing costs and rising vacancies hurt its fourth-quarter.

The Baltimore-based company is negotiating with lenders and will continue to sell properties and seek new financing this year, according to Robert A. Brvenik, Prime's chief financial officer.

Brvenik said yesterday that the company will still be able to make payments on debt totaling more than $900 million, but the company's income level will fall below specified levels on two loans totaling about $130 million. Defaulting on those loan provisions could trigger default provisions on other loans, the company said.

The beleaguered outlet center owner has faced severe cash shortages recently as it has struggled under a heavy debt load and has sold some properties to improve liquidity. The company's stock fell drastically before being delisted from the New York Stock Exchange last fall. It closed Thursday at 16 cents.

In a letter to employees, Prime's chief executive and president, Glenn D. Reschke, acknowledged the company's precarious position but said "we are healthier today than we were a year ago, but we are not `out of the woods' just yet. We still have a number of challenges in front of us, including the need to improve sales, traffic and occupancy at all of our centers this year."

Releasing its fourth-quarter and 2001 results Thursday evening, Prime said that its funds from operations, a key measure of a real estate investment trust's performance, declined 60 percent to $5.35 million in the quarter that ended Dec. 31, compared with $13.45 million in the corresponding period in 2000.

Prime's revenue, which comes mostly from base rents, fell 23 percent to $33.68 million from $43.99 million in the similar period in 2000, the company said.

The company posted a net loss of $12.32 million, less than the $111.39 million loss reported for the corresponding period in 2000, which included a significant one-time charge related to the revaluation of certain properties.

The cash-strapped company sold two properties in the first quarter of 2001. In January, Prime sold a 70 percent stake in its prized, 110-store Hagerstown outlet center to a Florida real estate investment firm.

"Clearly, we've had a rocky couple of years as a company, but through it I feel that this management team has responded well to address the issues," Brvenik said.

The company has 44 outlet centers in 25 states totaling about 12.4 million square feet of gross leasable area. As of Feb. 28, Prime's outlet portfolio was 87.7 percent occupied - down from 90.3 percent a year earlier.

For all of 2001, Prime reported funds from operations of $25.3 million compared with $58 million posted for the full-year period in 2000. Revenue in 2001 fell 21 percent to $141.12 million from $178.83 million for 2000. Net loss for the year was $98 million compared with a net loss of $142.45 million in 2000.

Average sales per square feet at Prime's centers declined to $241, from $245 in 2000.

The factory outlet industry continued to experience weakness at the beginning of the year. Nationwide, same-store sales declined 5.6 percent in January, according to the Factory Outlet Same-Store Sales Report from the International Council of Shopping Centers.

The outlet center industry has lost ground on competitive pricing to department stores and other mass retailers, said Jennifer Scheinker, an executive recruiter and director of the shopping center division for the Millman Search Group, a nationwide retail and executive search firm based in Lutherville.

Prime has been hurt with a lot of bankruptcy filings, Scheinker said. "There have been fewer retailers entering the outlet industry and it's very difficult for Prime to replace a tenant that leaves."

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