Prime Retail Inc. says it may default on loans

Outlet center owner faces $866 million in debts

May 17, 2002|By Gus G. Sentementes | Gus G. Sentementes,SUN STAFF

Prime Retail Inc., the cash-strapped outlet center owner, believes it will default on some loans in the second quarter as it seeks new financing and plans to sell more properties to stay afloat.

The Baltimore-based company continues to negotiate with lenders, according to a statement released with first-quarter results.

If that doesn't work, Prime, which has $866 million in debt, will seek financing from financial institutions, sell debt-related properties or explore capital transactions such as refinancings to generate cash to repay the debt, the company said.

Prime first disclosed in March the possibility of defaulting on two loans totaling $130 million. Prime is making payments on its debt, but its income may fall below specified levels on the loans, which could trigger cross-default provisions in other loans, the company said.

"We've been working to avoid bankruptcy, and to date, we've eliminated a number of the risks that would cause that to happen," Chief Financial Officer Robert A. Brvenik said yesterday. "But there's still some major issues that need to be addressed."

Prime is one of the biggest outlet center owners in the country, owning or managing 43 centers, including three in Maryland. Reflecting a broader weakness in overall retail sales, the company's same-store sales decreased 1.3 percent in the first quarter that ended March 31.

The outlet center industry suffered through a lackluster winter. Same-store sales among factory outlet retailers gained 0.6 percent in December, declined 5.6 percent in January and slipped 0.1 percent in February - the last month for which statistics were available from the International Council of Shopping Centers.

In its earnings released Wednesday evening, Prime said that its funds from operations, or FFO - a key measure of a real estate investment trust's performance - fell 4 percent to $7 million, or 2 cents per diluted share, in the three months that ended March 31 compared with $7.3 million, or 3 cents per diluted share, in the corresponding period last year.

The company said its FFO decreased because of a loss in net operating income that resulted from the sale of a 70 percent joint venture interest in Prime Outlets at Hagerstown in January and two properties during last year's first quarter. The loss was partially offset by interest expense savings, Prime said.

Revenue, derived mostly from base rents, dropped 13 percent to $50.7 million from $58.1 million in last year's first quarter. Net income was $1.7 million after a $7.2 million gain on the sale of real estate. In last year's first quarter, Prime posted a net loss of $5.6 million. Excluding gain on the sale of real estate, Prime had a $5.5 million loss.

"We're still strategically looking at reducing high cost debt via asset sales or refinancings," Brvenik said.

Shares of Prime closed yesterday at 10.5 cents, up 0.5 cents.

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