Prime Retail shares rise 125%

Outlet center owner's stock lifted by filing from rejected suitor

October 09, 2002|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Shares of struggling Prime Retail Inc. more than doubled yesterday after a New York-based investment company said it had offered to buy the outlet mall owner for $66.2 million.

Baltimore-based Prime turned down the offer from Fortress Investment Group LLC, which in June proposed paying 20 cents a share for Prime's common shares, a premium of nearly 70 percent at the time. Yesterday, shares of Prime, which traded for as much as $16 in 1997, closed at 9 cents, up 125 percent from 4 cents a share.

Fortress, an investment and asset management company and one of Prime's lenders, said in a Securities and Exchange Commission filing Monday that it had offered $8 a share for Prime's Series A preferred stock, a 60 percent premium, and $5 for each of Prime's Series B preferred shares, 81 percent more than market price. Shareholders could have chosen cash or a combination of cash and equity in the recapitalized company.

The offer would have given Fortress a 31 percent stake in debt-laden Prime, which has struggled with increased vacancies and has sold outlet centers or interests in centers to pay down debt and stave off bankruptcy. Once the largest owner of factory outlet centers in the United States, with 51 centers in early 2000, Prime now has 40 outlets in 25 states.

Fortress made its offer June 4, then revised it June 25, increasing the price per share for common and Series B stock, and boosting the value of its offer from $48.4 million to $66.2 million, the SEC filing showed. The offer also included a rights offering to buy $50 million of newly issued common stock, which would allow shareholders to buy additional shares at a predetermined price.

Prime rejected the offer after its board "determined that the proposal was inadequate," the company said in a statement late Monday night.

Bill Doniger, Fortress' managing director, did not return phone calls yesterday. A Fortress affiliate is a 50 percent owner of a $90 million loan to Prime with an outstanding balance of $33.2 million.

A spokesman for Prime declined to comment further on the proposal and said he could not comment on any discussions or offers.

The company has been working with financial advisers Houlihan Lokey Howard & Zukin Capital since mid-August to look into restructuring, financing and other strategies to strengthen its balance sheet.

"Together with our advisers ... the company will meet with credible investors, but we are prohibited from discussing negotiations," said Steven A. Sless, company spokesman. "Our goals are to continue to work to stabilize the company ... to reduce debt and increase occupancy."

Prime reported in August that its second-quarter funds from operations plummeted 68 percent and that it was in technical default on one of its loans. The company blamed its loss of revenue - a slide from $7.1 million in the second quarter of last year to $2.26 million in the quarter that ended June 30 - on the diminishing number of outlet centers in its portfolio. The company had sold eight centers since early last year. Its debt at the end of June totaled $864 million.

"Prime Retail has been in a sorry state for some time," said Paul Reeder, director of real estate for SNL Financial in Charlottesville, Va., which tracks real estate stocks. Reeder said he was not familiar with Fortress' offer.

"Hopefully, [Prime] will enter a deal which would allow the shareholders to get out more money than they have at the moment," he said. "Any time [there is] an offer for shares that is far more than they're trading on the open market, I presume it was rejected because management feels it can get better elsewhere."

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