Prime Retail's earnings decline 4%; Lack of increase is 1st in 2 years, though earnings per share rise; Major deals are pending; Retailing


Beset by debt and a resulting capital crunch, Prime Retail Inc. reported yesterday that its third-quarter earnings fell 4 percent, the first time in more than two years that the company has failed to post an increase in its income.

Prime Retail, the Baltimore-based owner of outlet centers, said its funds from operations dropped to $26.1 million, or 38 cents per share, in the quarter that ended Sept. 30. The company noted, though, that its earnings per share rose 2.7 percent.

At the same time, the real estate investment trust's revenue was $77.4 million, an increase of 5.2 percent from the comparable period in 1998.

"Our core operating portfolio continues to perform well as evidenced by our third quarter [funds from operations] of 38 cents per share, which is in line with consensus estimates," Abraham Rosenthal, the company's chief executive, said in a prepared statement.

Rosenthal did not return several phone calls for comment regarding the drop in earnings.

Prime Retail's earnings or funds from operations -- a standard measure of a REIT's financial health -- in the third quarter of last year had more than doubled from the three-month period in 1997, to $27.2 million.

The 145 percent gain stemmed from an acquisition of a Michigan outlet center developer that doubled Prime Retail's portfolio but also caused its total debt to rise to $1.3 billion.

Besides earnings per share, Prime Retail's third-quarter results contained some other bright spots, most notably a slight rise in the REIT's "same-store" and "same-space" sales, reversing a trend. The figures were up by 1.6 percent and 2 percent, respectively.

"Their same-store sales were up percentage wise, and while they did not keep pace with much of the retail industry, they reversed a trend that has seen those figures remain flat or move downward for the past year and a half," said David M. Fick, a Legg Mason Wood Walker Inc. principal who tracks Prime Retail.

"Their earnings were exactly where we expected them to be," Fick said. "They're operating their properties in a healthy manner."

The pending sale of three outlet malls for $274 million, together with new development in Puerto Rico and expansions in Hagerstown and San Marcos, Texas, should benefit Prime Retail's earnings next year, Fick said.

For the first nine months of this year, Prime Retail generated earnings of $80.1 million, $1.13 per share, an increase of 34 percent. Revenue for the first three quarters increased 48 percent, to $232.3 million.

Prime Retail's common stock rose 0.1875 cents per share on news of its earnings to close at $7.50 per share.

In all, Prime Retail owns 51 outlet malls containing 14.7 million square feet, valued at $2 billion. As of Sept. 30, its projects were 94 percent leased.

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