Published 5 November 2005
Equity Office Properties Trust turned round from a $US129 million net loss for the September quarter last year to a $US93.7 million profit this time, on revenue up 2.3% ($US16.7) million to $US738.6 million, but it’s not all go-forward for the biggest listed office building owner & manager in the US, which has a $US22.8 billion portfolio.
The loss a year ago was on a $US229.2 million non-cash impairment charge. This year the trust has worked on reshaping its portfolio and it’s been prepared to sell below book, but it’s also faced much higher operating costs. The trust has sold $US2.5 billion of assets this year – $US829 million in the third quarter, $US128 million so far in the fourth quarter. It’s also bought $US1.3 billion of assets this year – $US711.6 million in the third quarter, $US214.3 million this quarter.
After 3 quarters, its total available to common shareholders for 2005 is a $US10.8 million loss, compared to a positive $US36.9 million last year. Equity Office said the results for both years reflected non-cash impairment charges, a mix of gains & losses from property sales and provisions for $US201.7 million (last year $US222 million) of losses on assets held for sale.
US real estate investment trusts are inclined to pay less income to these overall balance-sheet pictures and focus on funds from operations, but that’s not so pretty either. Third-quarter funds from operations were $US227.7 million ($US49.4 million after the impairment charge last year), but for 9 months the FFO return was down 34.6%, from $US652.9 million to $US427.2 million after heavy sale & impairment loses in both years – $US384.1 million (last year $US229.2 million).
Same-store property net operating income for the September quarter (excluding lease terminations) fell 3.6%, $US12.5 million of it from damage to 3 New Orleans buildings, but the balance attributed to “significantly higher utility costs and payroll increases due to wage inflation”. Excluding hurricane-related charges, same-store net operating income would still have been down, by 0.7% for the quarter, 1% for 3 quarters.
Occupancy has risen from 86.5% a year ago to 88.4% in June, 89.3% in September â€“ 2 parts of the gain compared to a year ago from disposal, one part from leasing. That’s turned round this year, with more than half the gain from June to September quarter ends arising from leasing.
Equity Office president & chief executive Richard Kincaid managed some optimism, along with caution over costs: “We are encouraged by the improvement in office fundamentals in the third quarter. At the same time, however, we are concerned about the impact of rising utility expenses, construction costs & interest rates and their impact upon Equity Office & the broader economy.”
As a result of those factors, as well as the company’s continuing disposal programme, Equity Office hasn’t provided earnings guidance into 2006.