Arden Realty Inc. 11601 Wilshire Blvd., Fourth Floor
Los Angeles, CA 90025-1740
TEL (310) 966-2600
FAX (310) 966-2699
Every day, approximately 500,000 commuters pass the Howard Hughes Center in Los Angeles. The 70-acre urban campus is one of the only master-planned, mixed-use developments in Los Angeles that is fully entitled with a development agreement in place. The project has its own exit and entrance ramps connecting it to the 405 Freeway, and a number of buildings are already up and functioning, including 500,000 sq. ft. of office space.
Last year, Arden Realty Inc. purchased the center and quickly announced development plans (in partnership with Lowe Enterprises), including an additional 13 million sq. ft. of office space. Arden's price - $38.5 million. Howard Hughes paid $13,000 for the entire tract back in 1941.
In June, Arden Realty announced the purchase of 6701 Center Drive at the Howard Hughes Center in West Los Angeles for a price of $53 million, or approximately $169 per sq. ft. The 313,726-sq.-ft., Class-A office tower was purchased by the company as a strategic complement to its ownership of buildings in the Howard Hughes Center, which Arden is in the process of developing. The deal brings Arden's ownership of office properties within a three-mile radius of a total of 935,000 sq. ft., in addition to the approximately 4 million sq. ft. that Arden owns in the overall west side Los Angeles office market.
It's not as if someone had to convince Arden about the prospects for the Howard Hughes land - Arden Realty is not just a Los Angeles-based office REIT, it operates throughout Southern California. At the end of 1998, Arden owned 138 properties with approximately 18 million sq. ft. in Southern California - about 7% of the entire office market. While some REITs can boast being in Denver, Seattle, Phoenix and Dallas, Arden simply says it's in Los Angeles County (76 properties), Kern County (two properties), Ventura County (four properties), San Diego County (21 properties), Riverside/San Bernadino Counties (eight properties), and Orange County (20 properties). That fairly well sums up Southern California.
There's a good reason for Arden's singular focus. The region continues to deliver strong economic fundamentals and significant long-term growth, even as other areas of the country begin to flatten. In 1998, the Southern California office market experienced net absorption in excess of 5.4 million sq. ft. with rising rental rates in most submarkets.
In addition to the Howard Hughes purchase, the company's biggest transaction last year was a portfolio of 50 properties and 5.2 million sq. ft. from AEW/LBA Acquisition Co. Arden paid $620 million, buying the properties for about $119 per sq. ft., well below replacement cost. Arden's acquisitions last year totaled 66 properties and 7.7 million sq. ft. As with most other REITs, 1999 will prove to be a much quieter year for acquisitions.
Arden feels the temporary slowdown in acquisition activity should not be replaced with a rush to construct. Even in a market as dynamic as Southern California, prudent, quality construction of strategically relevant assets serves the long-term and shareholders' interests better than unchecked development, Arden reports.
Obviously, Arden has grown quickly. In 1996, assets totaled just $551 million. By the beginning of 1999, assets totaled $2.3 billion. Net-rentable square foot in 1996 was just 5.4 million; at the beginning of this year, it was $18 billion. Arden's tenant base numbers almost 3,000 companies in 45 separate submarkets.
For the six months ended June 30, on a cash basis, revenue from rental operations jumped from $92.2 million on June 30,1998, to $98.6 million, an uptick of 7%. Meanwhile, net income moved to $67.5 million from $63 million in 1998, an improvement of 7.2%. Even average occupancy was better, hitting 87.8% in June 1999 as compared to 83.7% for the same period last year.
For the second quarter 1999, Arden reported FFO reached $42.8 million, or $0.65 a share on a fully diluted basis, compared with an FFO of $37.7 million, or $0.58 per share for the second quarter of 1998. Revenues for the second quarter totaled $83.4 million, compared with $71.2 million for the same period the year before. Net income for second quarter hit $24.7 million, or $0.39 per share on a fully diluted basis, compared with $23.6 million, or $0.38 per share, for the second quarter 1998.
Arthur Andersen LLP 8000 Towers Crescent Drive Suite 400
Vienna, VA 22182
TEL (703) 734-7300
FAX (703) 762-1329
Serving REITs in the new economy We live in a time of economic change in which new companies are supplanting old, new business models are replacing traditional structures, and technology advances are creating new competitors. These changes will require every REIT to develop groundbreaking strategies for raising capital, conducting transactions, managing assets, producing growth and delivering shareholder value.
Under its new business model - REsource One - Arthur Andersen consultants advise management on every aspect of REIT formation and human and financial management - from structuring IPOs to developing capital, transaction and asset strategies. The company's success in serving clients can be attributed to the extensive involvement of partners in every major engagement and to the local, regional and worldwide resources available to each partner.
Services cover diverse areas, allowing the company to help REIT management answer key questions:
* What traditional and alternative sources of capital will support your growth story?
* How can your organization maximize the value of real estate assets?
* What are the best ways to assure success of mergers and acquisitions?
* How can you improve business processes to promote efficiency and reduce costs?
* Do you have the best people? Are they compensated appropriately?
* How can new technologies promote shareholder value?
Looking to the future The public real estate market is in a critical period, which will define the industry for years to come. Companies will need to look to alternative capital sources and growth strategies as the next year brings continuing constraints in capital availability. Mergers and acquisition activity will remain on an upward trend, highlighting the importance of due diligence and transaction skills. Arthur Andersen's Transaction Advisory Group (TAG), which is a regionally located group, specializes in assisting companies in evaluation and reviewing major transactions. The firm's real estate and technology professionals also work with REITs to deploy technology solutions that promote improved operations and a competitive advantage. A lease software product, for example, leverages Arthur Andersen's knowledge in process and technology to help clients streamline and reduce the time in placing tenants and ongoing administration.
Capital access, transaction management, operational improvements and technologies will all be important issues for the REIT industry in the next year.
Leadership The firm's Real Estate and Hospitality Services Group - under the leadership of Gary Lenz (Worldwide Managing Partner) - serves more of the top 25 equity REITs (ranked by market capitalization) than any other public accounting firm. The firm is responsible for a series of groundbreaking innovations, including the development of UPREITs, use of REITs for international investment and creation of the so-called "paperclipped" REIT. In addition, Arthur Andersen's alliance of REIT and state and local tax (SALT) consultants is the first nationally coordinated initiative to offer state and local tax services to REITs.
Arthur Andersen has been and continues to be committed to the National Association of Real Estate Investment Trusts (NAREIT). Carl Berquist (Vienna, Va.) and Tony Brown (Vienna, Va.) are co-managing partners of Arthur Andersen's REIT Services. Both Mr. Berquist and Mr. Brown represent Arthur Andersen as Associate Board Members of NAREIT.
For more information
Gary Lenz 213 614-6696
Carl Berquist 703 962-3801
Tony Brown 703 962-3372
CarrAmerica Realty Corp. 1850 K St. NW
Washington, D.C. 20006
TEL (202) 729-7500
Keenly aware of the cyclical nature of its business, CarrAmerica Realty Corp. reduced its acquisition rate last year in anticipation of changing market conditions. Overall, property acquisitions declined from $1 billion in 1997 to $500 billion in 1998 and will continue to decline in 1999. It also began a program of re-deploying capital from lower-yielding assets to higher-yielding assets. Last year, the company sold $180 million of assets, and dispositions continue into 1999.
Based in Washington, D.C., CarrAmerica Realty Corp. owns and operates office properties in 14 markets throughout the United States. The company is committed to becoming the country's leading office workplace by meeting the rapidly changing needs of its customers with superior service, a large portfolio of quality office properties, extraordinary development capabilities, and through HQ Global Workplaces and other affiliates, the services of executive suites.
Currently, Carr-America and its affiliates own a controlling interest in a portfolio of approximately 255 operating office properties and have 40 office buildings under development in key growth markets, including Atlanta, Austin, Texas, Boca Raton, Fla., Chicago, Dallas, Denver, Los Angeles/Orange County, Phoenix, Portland, Ore., Salt Lake City, San Diego, the San Francisco Bay Area, Seattle and Washington, D.C.
>From 1996 through the end of 1998, the company grew very quickly with >market capitalization jumping from $2.2 billion to $4 billion. 1998 was, >in fact, a good year for the company as funds from operations (FFO) >reached $2.63 per diluted common share, up 13.4% from $2.32 the prior >year. Meanwhile, revenues from same-store operating properties increased >4.7% from the year before.
For the first half of 1999, CarrAmerica reported that FFO for the six-month period ended June 30, 1999, totaled $106.8 million or $1.40 per diluted share as compared to $93.3 million or $1.28 per diluted share for the same period in 1998, a 9.4% increase. For second-quarter, the company reported FFO of $51.9 million or $0.70 per diluted share, compared to $51.2 million, or $.65 per diluted share, for the same period in 1998, a 7.7% increase.
Last year, CarrAmerica solidified its position in the alternative office market, putting the company on the cusp of a changing industry as corporations increasingly seek out immediate solutions to their short-term space needs. In 1997, the company entered this market with the acquisition - through an affiliate - of OmniOffices Inc. In 1998, OmniOffices acquired the operations of HQ executive suites' companies with locations in 29 markets. Also in 1998, OmniOffice bought - through another affiliate - the operations of HQ Holdings Ltd. of London. Now, CarrAmerica is the leading U.S. operator of executive suites, with 100 executive suite offices in the country, and it is also emerging as a global leader in this rapidly growing market.
One of the keys to CarrAmerica's business strategy is an ability to build lasting customer relationships. To that end, back in 1997, CarrAmerica established a National Services Group to cultivate ongoing relationships with large corporate accounts. By combining commercial real estate expertise with understanding, the group stays in touch with promising corporate customers such as Nextel - which decided to locate its new corporate headquarters into CarrAmerica buildings, taking 328,000 sq. ft. in Reston, Va. - and Nokia, which took 150,000 sq. ft. in a build-to-suit in Dallas.
Clearly, one of CarrAmerica's strengths has been development, and the company is committed to being one of the largest, most active developers in the United States. Last year, it placed 2 million sq. ft. of newly constructed office space in service. As of March, CarrAmerica boasted 3.3 million sq. ft. under development in all 14 of its markets. Total costs of this development are expected to be approximately $493 million, of which $338 million was invested as of March. This development pipeline is currently 73% leased or committed and the year-one unleveraged return on CarrAmerica's invested capital is expected to be approximately 11.2%.
To pay for new development, CarrAmerica moved to three basic funding sources - secured debt financing, selective joint-venture activity and existing property disposition. During the first quarter, the company sold 24 office buildings for $266.4 million, resulting in a gain, after taxes, of $17.4 million.
Center Trust Inc. 3500 Sepulveda Blvd.
Manhattan Beach, CA 90266
TEL (310) 546-8254
FAX (310) 546-3396
A new management team, using improved staffing and management systems and new sources of capital, is transforming Center Trust Inc. (NYSE: CTA), led by Chairman and CEO Ned Fox. Fox, who joined the company in March of 1998, is a veteran real estate professional with 28 years of experience. Other newcomers to the management team include Senior Vice President of Leasing Bill Hewitt and Senior Vice President of Assets Joe Paggi Jr., both of whom joined the company in April of 1998.
The success of this highly talented team is reflected in the company's increased occupancy rates, its acquisitions and dispositions performance, its financing operations, and its redevelopment efforts.
Center Trust has emerged as a leading owner/operator of community retail centers in the attractive western U.S. market. The company's current portfolio consists of 61 shopping centers (including 48 community shopping centers) encompassing 10.2 million sq. ft. of company-owned GLA. These centers are primarily oriented toward convenience retailing. More than half of the company's community centers are anchored by a grocery store.
The advantages of a convenience-retail focus include a strong tenant base and consistent retail demand, providing some protection from the effects of e-commerce. The leasing team remains focused on identifying opportunities within the current portfolio of community shopping centers, which was 94.4% leased as of June 30, 1999, up from 91.7% as of March 31, 1999.
All of Center Trust's properties are located in the western United States. With population, household income and overall economic growth expected to exceed other parts of the country over the next few years, the western United States is poised to generate above-average retail sales growth and robust rent and occupancy levels for Center Trust's community centers. Population growth for the western states is projected to exceed the national average by 35% to 85%, job growth by 50% to 60% and retail sales growth by 20% to 25% over the next three years.
Another key element of the company's strategic plan is the disposition of several non-strategic assets. Since announcing its intention to dispose of these assets, the company has generated proceeds of $60 million from the sale of four assets and expects to raise an additional $150 to $200 million from additional sales. The proceeds from these dispositions will be used primarily to reduce outstanding debt, including the company's convertible debentures, which mature in January of 2001.
During the next 12 to 18 months, the company will continue to execute its strategic objectives, including the continued lease-up of its portfolio of community shopping centers; debt refinancings focused on extending maturities and lowing interest rates; the disposition of non-strategic assets; and continuing to improve the efficient operations of its assets.
COMPS.COM Inc. 9888 Carroll Centre Road Suite 100
San Diego, CA 92126-4580
TEL (619) 578-3000
COMPS.COM evolved as a solution to a problem ... How can real estate professionals get accurate, timely information without using up to 40% of their time gathering and researching data? Until the last decade, there were few options. Due diligence required hours of digging through records, microfiche and news sources for information.
Established in 1982, COMPS was the brainchild of a successful real estate broker and property developer. Through trial and discovery, he developed a process that converted raw data into value-added information and reports, creating the industry's most accurate and powerful database. To grow and maintain this database, he needed a team of motivated and savvy real estate professionals who understood what their peers wanted in a final report. Each phase of his seven-step process would require individuals with astute abilities in research and investigation. Members were hand-selected, trained and oriented to the objectives of COMPS - to be the No. 1 provider of the most accurate commercial real estate market information in the nation.
The company recently changed its name from COMPS Infosystems Inc. to COMPS.COM as part of its shift to using the Internet as a primary delivery platform. The change is aimed, in part, at prompting existing and prospective customers to visit the Website for the company's complete product offering. Another key aspect of the change is that overall service will be improved for the customer base since the nature of the Internet allows for new applications to be built more rapidly.
To underscore the fact that COMPS.COM is no longer a paper company, it announced the national roll-out of E-COMPS II, an expanded version of E-COMPS, the online product that allows for purchasing sale comparable reports on an ad-hoc basis.
With E-COMPS II, a user anywhere in the world can select properties online for any of COMPS' markets nationwide that are most relevant to the subject property and make a credit-card transaction to purchase the comparable information. In addition, property sale comparables reports can be printed out in color from a high-quality, Adobe Acrobat file format or downloaded to an image file, important features that were not included in E-COMPS.
COMPS' suite of other Internet products includes DealPoint, a commercial listing service that was launched on January 11 in San Diego. DealPoint is scheduled to be available nationally on a market-by-market basis over the next 12 months.
Other products include Pipeline, an adjunct to COMPSLink, COMPS' acclaimed software database management package that provides the most current COMPS information available. Another product, Spectrum, is a subscription/Internet-based data warehousing platform.
COMPS.COM's database contains the following information: $466 billion in sales transactions; $143 billion in loan volume; 400,000 property transactions; 2,643,000 apartment units; 780,000 buyer and seller records; 10 property types; and more.
Property types include apartment, retail, office, industrial, residential land, commercial land, industrial land, specialty (hospitals, schools, churches, etc.), hotel/motel and mobile home parks.
With headquarters in San Diego, COMPS has been the acknowledged leader of commercial real estate information services since its inception in 1982. The company maintains a database of more than 500,000 transactions that serves a clientele of more than 25,000, including brokers, lenders, appraisers, investment banks, insurance companies, REITs and corporate real estate executives. COMPS' Website is www.comps.com.
Duke-Weeks Realty Corp. 8888 Keystone Crossing
Indianapolis, IN 46240
TEL (317) 808-6000
In a year when merger and acquisition activity among REITs was relatively quiet, one of the biggest deals of 1999 was the merger of Duke Realty Investments and the Weeks Corp. Completed on July 2, the combined company, now operating as Duke-Weeks Realty Corp. and based in Indianapolis, encompasses nearly 100 million sq. ft. of primarily suburban office and industrial properties ranging from Minneapolis to Miami.
With a total market capitalization exceeding $5.5 billion, Duke-Weeks now sits as the largest office/industrial real estate company in the United States. Its vital statistics are equally impressive. The fully integrated company owns interests in nearly $100 million sq. ft. of properties across the Midwest and Sunbelt and has the longest ongoing (14 consecutive) quarters in the industry of double-digit growth in funds from operations (FFO) per share. The company can count $600 million in annual rental revenue from approximately 5,000 tenants in 13 key geographic platforms, including Indianapolis, Chicago, St. Louis, Minneapolis-St. Paul, Cincinnati, Columbus, Ohio, and Cleveland in the Midwest, and Dallas, Nashville, Tenn., Raleigh, N.C., Spartanburg, Miss., Atlanta, and in Florida, Jacksonville, Orlando, Tampa, Fort Lauderdale and Miami in the South.
Duke-Weeks also owns or controls nearly 4,800 acres of undeveloped land that can support approximately 65 million sq. ft. of future development, some of which has already gone into production. In July, the company announced it commenced 24 new developments and completed two new acquisitions (industrial buildings in Chicago) totaling more than 2.9 million sq. ft. The firm expects to achieve a stabilized return of 11.4% on its total investment of $203 million in these new properties.
With the recent announcements, the company's combined year-to-date new developments and acquisitions total $749 million with an expected stabilized return of 11.3%. Following $195 million of development completions in the second quarter, Duke-Weeks' development pipeline now stands at appro ximately 11.5 million sq. ft., representing an investment of $826 million with an 11.3% stabilized return.
Among its present projects are a 195,000-sq.-ft. office and industrial building in Orlando, Fla., a 125,000-sq.-ft. suburban office building in Tampa, Fla., two suburban office buildings in North Carolina totaling 230,000 sq. ft., two industrial buildings in Dallas totaling 215,000 sq. ft., and a 116,000-sq.-ft. office building in Nashville, Tenn.
Generally, in REIT mergers, the management staff of the acquired company finds their services are no longer needed. Exactly the opposite happened in the formation of Duke-Weeks. The merger brought together the entire management and operations of the two companies. Thomas Hefner, chairman, president and CEO of Duke, became chairman and CEO of Duke-Weeks, while A. Ray Weeks, chairman and CEO of Weeks Corp., became vice chairman, president and CEO. Weeks will remain in Atlanta where the company will maintain its primary hub for the Sunbelt.
It's interesting to note the pattern in this merger. The Weeks Corp. was formed when A.R. Weeks & Associates merged in 1992 with another privately held company called Anderson-Senkbeil. A. Ray Weeks became chairman and CEO in that deal while Tom Senkbeil took on the jobs of vice chairman and CIO. Weeks Corp. went public in 1994, immediately becoming the largest industrial REIT in the Atlanta area. Duke Associates, a partnership of three Indianapolis professionals including Philip Duke, was established in 1972. It was finally organized as a REIT in 1986.
What's unusual about the formation of Duke-Weeks is that it brought together the two REITs with the longest ongoing records of double-digit FFO growth per share. In July, the last reporting period of two separate quarterly statements, Duke's second quarter operations were $48.6 million compared with $36.9 million for the second quarter last year. On a per share basis, Duke's FFO increased 17.4% to $0.54 for the second quarter 1999 from $0.46 per share for the second quarter 1998. This was the company's 15th consecutive quarterly double-digit increase in FFO per share.
The Weeks Corp.'s second quarter FFO hit $14.9 million before $1.9 million (net of minority interests) of non-recurring costs directly associated with the merger, compared with $12.7 million for the second quarter last year. On a per share basis (before merger expenses), FFO increased 13.8% to $0.74 per share, compared with $0.65 per share for the second quarter of 1998. Including the non-recurring merger expenses, Weeks' FFO in the second quarter of 1999 were $.65 per share.
Equity Office Properties Trust
Two North Riverside Plaza, 22nd Floor
Chicago, IL 60606
TEL (312) 466-3300
FAX (315) 559-5085
The nation's largest publicly traded office building owner Equity Office Properties Trust (NYSE:EOP) is the nation's largest publicly held owner and manager of office properties. With a total market capitalization of approximately $14 billion, Equity Office owns and manages 76.2 million sq. ft. of primarily Class-A office space in 285 buildings in 35 major metropolitan areas across the country. From this unique national platform, EOP offers a wide range of space and service options to customers with local, regional or national office space needs.
EOP's national competitive advantage also offers unparalleled access to low-cost capital, acquisition opportunities, real-time market information and top management talent in the industry.
Equity Office's origin dates back to 1976 when an integrated real estate management and acquisition organization was founded by Samuel Zell, chairman of Equity Office. The company's portfolio was consolidated and taken public in July 1997. Since its IPO, Equity Office has more than doubled in size, going from 32.2 million sq. ft. to 76.2 million sq. ft., through strategic acquisitions, including the Beacon merger in December 1997.
A national organization Equity Office's corporate headquarters in Chicago supports six regional offices in Atlanta, Chicago, Denver, Los Angeles, Houston; and Washington, D.C., as well as several area offices in major metropolitan areas, and employees at the property level. The company has a total of approximately 1,700 employees. National, regional and local management initiatives are designed to develop and share best practices throughout the organization.
The company's management strategy, based on attentive, local service to achieve long-term customer satisfaction, has been pivotal in building a brand reputation across the country. In addition, EOP's history of targeting strategic acquisitions in markets nationwide has resulted in an investment staff with unparalleled market knowledge and resources.
Equity Office mission To be the office company of choice and to be valued by its employees, customers and investors as partners in their success.
Equity Office strategy
* Attract and retain the best people by creating a dynamic environment which inspires EOP to test limits and exceed expectations.
* Discover the unique needs of each customer. Deliver more than they expect.
* Deliver coast-to-coast consistency.
* Capitalize on the opportunities created by the firm's size and scope.
* Build relationships that foster long-term mutual commitment.
* Assure that each decision contributes to the company's profitability.
Building distinction Equity Office is the first publicly traded owner and operator of office properties to truly achieve national status, with office space in virtually every major metropolitan area of the country. The company serves more than 6,000 customers, including many of the top names in corporate America.
* Risk diversification. Equity Office's geographically diverse portfolio minimizes risk from adverse economic cycles in any one region of the country. The portfolio is also diversified between central business district (57%) and suburban (43%) locations.
* Access to capital. Equity Office's financial strategy is based on utilizing low-cost capital to facilitate growth. Unparalleled access to a range of financing options - both debt and equity - allows EOP to pursue its long-term objectives regardless of current capital markets cycles.
* Customer focus. The tremendous inventory and diversity of Equity Office's portfolio allows the company to partner with its customers to meet their particular needs. EOP's National Accounts Program offers streamlined leasing and long-range space planning services to more than 150 multi-location companies across the country.
* Economies of scale. Nationally, significant savings are recognized in such areas as insurance, maintenance contracts and parking management. Concentrations of space in any given market allow for additional cost efficiencies through citywide bidding programs, service offerings and coordinated staffing.
* Management depth. The members of EOP's senior management are recognized as leaders and innovators in the REIT sector. The senior executives have an average tenure of 12 years with the company and more than 25 years of experience in the real estate industry. In addition, Equity Office's size and national scope allow the company to attract and retain the most talented employees.
Equity Residential Properties Trust Two North Riverside Plaza
Chicago, IL 60606
TEL (312) 474-1300 FAX (312) 454-0614
Equity Residential Properties Trust (NYSE: EQR) and Lexford Residential Trust (NYSE: LFT) announced, on July 1, a definitive agreement and plan of merger. The merger is expected to close on or around October 1, 1999.
The merger, approved by Equity Residential's Board of Trustees and Lexford Residential's Board of Trustees, will create a new operating division for Equity Residential. The Lexford Residential portfolio of 402 properties consists of 365,609 units in 16 states. Upon completion, Equity Residential will own and operate 1,087 properties consisting of 229,817 units in 36 states and have a total market capitalization of $13 billion.
Equity Residential Properties Trust's reported results for the quarter and six months ended June 30, 1999, were FFO of $151.2 million, or $1.11 per share (based on a weighted average of common shares and operating partnership units outstanding - assuming dilution). These figures compare with $107.6 million, or $.99 per share in the same quarter of 1998 - a 12.1% increase on a per share basis.
For the second quarter of 1999, total revenues increased 37.5% to $422.3 million compared to $307.1 million in the same period last year. Net income available to common shares for the quarter was $68.9 million, or $.57 per share, compared to $46 million, or $.47 per share, in the same period last year. Average occupancy for the quarter was 95%.
For the first six months of 1999, FFO increased $87.9 million to $296.5 million compared to $208.6 million for the same period of 1998. On a per share basis, FFO increased 11.7%, to $2.19 from $1.96. For the first six months of 1999, total revenues increased 41.3% to $838.6 million from $593.4 million in the same period of 1998.
Net income available to common shares for the six months ended June 30, 1999, was $133.1 million, or $1.11 per share, compared to $81.9 million, or $.85 per share, in the same period last year. Average occupancy for the first six months of 1999 was 95.1%.
During the second quarter of 1999, Equity Residential acquired 9 properties consisting of 2,061 units for an aggregate price of approximately $135.1 million. In addition, also during the second quarter of 1999, Equity Residential sold four properties consisting of 764 units for an aggregate sale price of approximately $24.4 million on these transactions.
Since the end of the second quarter, Equity Residential has acquired three properties consisting of 1,201 units for an aggregate purchase price of approximately $267.5 million. In addition, the company sold three properties consisting of 648 units for an aggregate sale price of approximately $34.9 million. The company will report a profit of approximately $2.1 million on these transactions.
Equity Residential Properties Trust is the largest publicly traded apartment company in America. Nationwide, Equity Residential owns, or has an interest in, 686 properties in 33 states consisting of 194,168 units.
Glenborough Realty Trust Inc. 400 South El Camino Real
San Mateo, CA 94402
TEL (650) 343-9300
FAX (650) 343-8754
Glenborough Realty Trust Inc. might be considered a contrarian REIT. In an age when most REITs specialize in one asset class or another, San Mateo, Calif.-based Glenborough prides itself on diversity. The slogan for the company, ripped from the pages of its annual report, might very well read, "Diversification can provide both stability and flexibility required in today's volatile economic environment."
Glenborough's diversification is anything but static. In 1996, 26% of the company's FFO contribution came from office, 25% from industrial, 14% from multifamily, 20% from retail and 15% from hotel. In March, 46% of the company's FFO was derived from office, 17% from office/flex, 9% from industrial, 24% from multifamily and 4% from retail.
The dramatic changes have not only to do with acquisitions, but an aggressive divestiture program as well. In October of 1998, the company announced its intention to sell $200 million in assets, and it's on track to do just that. During the fourth quarter of 1998 and the first quarter of 1999, $17 million and $25 million of assets were sold, respectively.
In the second quarter of 1999, Glenborough completed the sale of 13 properties for a total of $63.5 million. The sold properties were represented by 21% office, 35% office/flex, 13% industrial, 6% retail, 17% multifamily and 8% hotel. Most of the sale proceeds were reinvested to defer gains, primarily through Section 1031 exchanges, in the purchase of a $49.1 million portfolio from Prudential-Bache/Equitec Real Estate Partnership.
Glenborough went public in 1995 and from then on, through the start of the year, it has delivered 19% annually compounded FFO growth, 6.6% annualized increases in same-store, net-operating income, 25% annualized total return to shareholders and a 40% increase in common stock dividend.
Since Glenborough's inception, the average age of the assets in the portfolio has declined from 16 years to 12 years and, concurrently, the average size asset jumped from $3 million to $10 million, enhancing efficiencies in property management and operations. In addition, industry analysts estimate Glenborough's net asset value per share has increased approximately 60% since inception.
At the end of last year, total revenue reached $241.5 million, up handsomely from $68.2 million the year before. At the same time, FFO jumped to $80 million or $2.25 per share, from $36 million or $1.83 per share, the prior year.
For the second quarter, FFO per diluted common share grew by 9% to $21.8 million, or $0.61 per share, from $19.4 million, or $0.56 per share, in the corresponding period in 1998. Year-to-date FFO equaled $43.3 million, or $1.20 per diluted common share. This represents a 12% per share increase year-to-date from $37.1 million, or $1.07 per diluted common share.
The company's market capitalization now stands at $1.8 billion. In addition, no tenant contributes more than 1.5% of total income, no single metropolitan area represents more than 9% of net operating income and no one product segment represents more than 46% of net operating income.
Glenborough's strategy is to do the following:
* Increase shareholder value through active portfolio management, including profitable acquisitions, selective development, vigorous property management and timely dispositions.
* Strategically diversify the portfolio to benefit from changing market conditions and opportunities, create strength and reduce risk.
* Increase property cash flows and values through outstanding tenant retention and cost-effective property operations.
* Maintain conservative financial policies and a strong balance sheet.
One of the company's key expansion strategies is to develop through alliances, thus avoiding the overhead expense of an internal development arm. In alliance partners, Glenborough looks for regional developers with local market expertise, strong market positions, proven track records and a tenant-driven attitude. Generally, both partners in the alliance put capital into a project - Glenborough has never accepted a subordinated equity position.
Today, the company boasts five key alliances that are expected to create 13 projects over the 1999 to 2000 time period. As an example, in the second quarter, Glenborough purchased a 10% interest with Blackstone Real Estate Partners II in the fee-simple interest in the land under Rincon Center I and II in San Francisco.
For 1999, Glenborough focused on three objectives: capital re-deployment, maintaining a conservative balance sheet and concentrating on property operations to increase earnings growth.
Mack-Cali Realty Corp. 11 Commerce Drive Cranford, NJ 07016
TEL (908) 272-8000
FAX (908) 272-6755
John Cali and William Mack were two entrepreneurial, independent businessmen from New Jersey until 1997, when they combined their two companies. The Mack Co. and the Cali-Realty Corp. merged into Cranford, N.J.-based Mack-Cali Realty Corp., which today is a $3.8 billion REIT.
Just two years and numerous acquisitions - Robert Martin Co., Patriot American Office Group - later, Mr. Cali and Mr. Mack were appointed to the company's board of directors, leaving the management of the company to a new generation of leaders, in particular Thomas Rizk as chief executive and Mitchell Hersh as president. The change was barely noticeable as the company continues to expand in the northeast corridor, where it is a powerhouse in selected states.
Today, Mack-Cali's 255 primarily offices and office/flex buildings can be found in 12 states and the District of Columbia. The company's 28.3 million sq. ft. serves more than 2,400 tenants, including Allstate Insurance, AT&T, Nabisco, Prentice-Hall, DLJ Securities, Morgan Stanley Dean Witter and the Federal Reserve. Approximately 75% of Mack-Cali's portfolio can be found in four Northeastern states,in particular an area stretching from the suburbs of Philadelphia through New Jersey and Westchester County, N.Y., to Fairfield County, Conn.
The company also boasts properties in Maryland, Washington, D.C., Florida, Iowa, Nebraska, California and other concentrations in Arizona, Colorado and Texas.
What's striking about Mack-Cali, particularly in the quiescent year of 1999 when other REITs are basically in a neutral mode - selling a few properties, buying a few properties - is that the company continues to expand by acquisition. There have been no major portfolio deals, but it has picked off individual properties, from office buildings in Colorado to acreage in Texas.
The reason for the company's continued acquisitive streak can be laid to solid financial footing. A Mack-Cali goal has been to develop one of the strongest, most flexible balance sheets in the industry. Last year, it took a major step in that direction when it increased borrowing capacity under its credit facilities from $500 million to $1.1 billion on terms favorable to the company. The credit capacity is one of the industry's largest. Then, in the first quarter, Mack-Cali was able to issue $600 million in unsecured public notes. It was the company's first public debt issuance, and the second largest debut offering in REIT history - increasing the weighted average term for the company's indebtedness from 4.2 to 6.3 years.
On top of all that, the company earned investment-grade ratings. Its credit is rated BBB by Standard & Poor's and Duff & Phelps Credit Rating Co., and Baa3 by Moody's Investors Services.
The company continues to stay on the good side of the credit companies by continued strong operating performances. Last year, the company set records across the board as revenues increased 97.6% to $493.7 million from $249.8 million the prior year. FFO rose 94% to $216.9 million from $11.8 million the year before. Also getting a boost was Mack-Cali's dividend, which was upped by 10.5%, to $2.10 from $1.90 in 1997.
Mack-Cali's FFO, after adjustment for straight-lining of rents, for the quarter ended June 30, amounted to $60.7 million, or $0.82 per share, versus $54.2 million, or $0.76 per share, for the quarter ended June 30, 1998, a per share increase of 7.9%. For the six months ended June 30, FFO, after adjustment for straight-lining of rents, amounted to $120.9 million, or $1.63 per share, versus $101 million, or $1.48 per share, for the same period last year, for a six-month period increase of 10.1% on a per share basis.
Not only has a strong balance sheet helped Mack-Cali expand, but the company remains flexible to dealmaking. For example, in 1998 it bought the Prudential Business Campus (renamed Mack-Cali Business Campus) in Parsippany, N.J., from the Prudential Insurance Co. of America. Concurrent with the transaction, Prudential and its affiliates purchased $100 million in Mack-Cali stock. The company, as it enters new markets, also teams up with companies that offer local expertise. In California, Mack-Cali has joint-ventured deals with local developers, particularly on such projects as the acquisition and reposition of Convention Plaza in San Francisco. Even in its home state of New Jersey, Mack-Cali has pooled land and expertise to develop properties.
Prudential Securities Inc. Real Estate Investment Banking
One New York Plaza
New York, NY 10292
TEL (212) 778-1977
Prudential Securities' Real Estate Group, which is comprised of approximately 40 bankers, offers a full range of investment banking services for commercial real estate owners and institutional clients, including public and private capital raising, financial advisory services and lending on a principal and agency basis. Prudential Securities has managed 183 real estate-related equity transactions since 1993, raising approximately $28.3 billion for its clients.
During 1998, the Group managed 45 public equity transactions raising approximately $5.5 billion, and ranked second in lead managed common equity transactions with 18 offerings totaling $1.3 billion. Since 1997, the Group has also raised approximately $1 billion in private equity placements.
The Group has acted as financial advisor on 35 M&A transactions totaling $14.1 billion since the beginning of 1997, ranking third in number of completed deals. Since the beginning of 1997, the Group has also managed 44 real estate-related debt transactions totaling $12.4 billion.
For more information, contact Richard Schoninger, Managing Director, Head of Prudential Real Estate Group, at (212) 778-1977.
American Industrial Properties REIT 6210 North Beltline Road
Irving, TX 75063
TEL (972) 756-6000
FAX (972) 756-0704
To say that American Industrial Properties REIT is an office or an industrial REIT would be something of a misnomer. The company specifically focuses on light industrial and office/flex space, including such configurations as office showroom, service center, flex properties, low-rise office and small-bay distribution buildings.
The Irving, Texas-based company, which was founded in 1985, prefers light industrial-type properties because management believes it is underserved in the public market and capable of providing significantly higher returns than other, more competitive sectors. Over the past year, AIP narrowed its focus even more, investing in those property types that appeal to companies operating in the rapidly growing technology sector of the economy. Attributes AIP looks for include flexible space configuration, independently controlled access and utilities, drive-up surface parking and campus-style settings.
As of the first quarter 1999, 50% of AIP's revenues were derived from companies active in the telecommunications, computer software and hardware, electronic components and Internet and e-commerce sectors of the technology economy. Among its larger tenants are Cisco Systems, McData Corp., Lockheed Martin, MCI Telecommunications, Northern Telecom, Radian Corp., AT&T Corp., and Super Micro Computer.
Considering its clientele, AIP properties can be found in such high-tech corridors as Austin, Texas, San Francisco, Phoenix and Northern Virginia. In addition, AIP owns and manages properties in Dallas/Fort Worth, Houston, Denver, Los Angeles, Cleveland and Central Florida. In total, the AIP portfolio now consists of 156 buildings comprising 8.3 million sq. ft.
The company continues to expand rapidly. In January, it acquired a portfolio of nine properties in California and Colorado from an institutional seller for $127 million. The nearly 1 million sq. ft. of high-quality, one- and two-story office/flex buildings were 99% leased.
In regards to financing, AIP completed, in July, an $86.8 million permanent financing with an affiliate of Aegon Life Insurance Co. Proceeds from the financing were used to retire a $75-million bridge loan used in the January portfolio acquisition.
Last year, the company's total assets grew from $258 million to $500 million, an increase of 94%. Shareholder's equity vaulted 69% to $206 million, up from $122 million the year before, and FFO rose to $1.10, a dramatic increase of 214% from $0.35 per share in the prior year.For the six months ended June 30, 1999, AIP reported FFO of $13.9 million, or $0.68 per share compared to $5.7 million, or $0.52 per share, in 1998. Net income totaled $7.4 million, or $0.37 per share, compared to $2.2 million, or $0.20 per share in 1998.
Bradley Real Estate Inc. 40 Skokie Blvd.
Northbrook, IL 60062
TEL (847) 272-9800
FAX (847) 480-1893
In a bold move to solidify its position as a manager and owner of shopping centers in the Midwest, Bradley Real Estate Inc. acquired another publicly traded REIT, Mid-America Realty Investments, for approximately $159 million. Together, with another 22 acquisitions, Bradley expanded its asset base by $203 million in 1998.
The Northbrook, Ill.-based company is the nation's oldest REIT and a leading owner and operator of neighborhood and community shopping centers in the Midwest region of the United States. The company owns 98 shopping centers located in 16 states, aggregating 15.8 million sq. ft. of rentable space. The company also paid 151 consecutive quarterly distributions to its shareholders - the longest record of distributions among publicly traded REITs.
Bradley Real Estate is held in such good stead by investors that when the REIT market was sinking into the maelstrom last year, Bradley continued to float above the turmoil. In 1998, the NAREIT Equity Index finished the year with a -17.5% total return and the NAREIT strip center index, comprised of many of Bradley's peers, produced a -7% return. Amid all this negative reporting, Bradley posted a total return of 4.4%.
For the second quarter, Bradley Real Estate reported a 9.8% increase in second-quarter FFO per share to $0.56, or $14.5 million, from $0.51, or $12.8 million, a year earlier. For the six months ended June 30, 1999, FFO per share increased 11.9% to $1.13, or $29.0 million, compared to $1.01, or $25.1 million, in the prior year. All per share amounts are reported on a diluted basis.
Although Bradley has not historically been an active developer of properties, this year the company plans to invest the resources necessary to begin establishing itself as a developer of grocery-anchored retail shopping centers. To that end, the company entered into a co-development program with an affiliate of Oppidan Inc., a developer of similar shopping centers in the Midwest. Bradley and Oppidan will work together on all aspects of the development process, with Bradley purchasing the properties upon completion.
Bradley's portfolio of shopping centers consists of a diverse tenant base comprised of more than 2,000 leases, with no one tenant accounting for as much as 4% of annualized base rent. At the end of the first quarter, portfolio occupancy rose to 93% - a one percentage-point increase over the prior year.
Lexington Corporate Properties Trust 355 Lexington Ave., 14th Floor
New York, NY 10017
TEL (212) 692-7260
FAX (212) 986-6972
Lexington Corporate Properties Trust is not your typical REIT. The company's moniker certainly appears to be derived from Lexington Avenue in New York, where its corporate offices can be found and its product is net-lease properties. While most REITs can be defined as industrial, office or retail, Lexington owns and/or manages all three.
Basically, Lexington is a REIT that acquires, owns, invests in and manages properties in which a corporate tenant has made a long-term commitment through a net lease. The leases are generally "triple net" whereby virtually all property operating expenses, such as insurance, real estate taxes, maintenance and repairs are paid by the tenants.
It owns and manages 11 million sq. ft. in a portfolio of 65 office, industrial and retail properties net-leased to major corporations in 29 states. At the end of 1999, all of Lexington's properties were fully occupied, with one exception, to 45 major corporations, including Honeywell, The Hartford Fire Insurance Co., Fleet Mortgage Group, Lockheed Martin and General Motors. By one estimate, Lexington derives over 40% of its cash-base rents from investment-grade tenants, just under 30% from non-investment grade tenants and the remainder from unrated tenants. The non-investment grade and unrated tenants include household names such as Exel Logistics, Kmart, Hechinger, Comp USA and Circuit City.
Lexington's portfolio boasts an average lease term of 9.25 years.
The company grows its portfolio in a variety of ways, primarily by buying properties and leasing them back to the sellers under net leases, and by acquiring properties already subject to net leases. This means that Lexington provides financing to corporations seeking to raise capital through the sale of their real estate holdings, and to developers engaging in build-to-suit projects for corporate users.
Coming out of 1998, the company's objectives continue to include acquiring properties net-leased to major corporations where expected total returns exceed the cost of capital employed; further diversifying holdings by geographic location and tenant-industry concentrations while meeting acquisition criteria for tenant credit; lowering cost of capital by refinancing old debt; improving balance-sheet flexibility and access to both public and private capital; maintaining high levels of occupancy while selectively selling certain assets; and enhancing returns by controlling expense growth in relation to size.
For 1999, the company added another major strategic initiative - it is actively seeking joint ventures and similar programs which could potentially involve purchasing properties on a shared basis or selling controlling stakes in certain assets presently owned by the company. The objective of this action is to enhance returns on equity and improve investment diversification.
In July, Lexington announced its formation of a joint venture with a large (unnamed) state pension fund to invest in single-tenant, net-leased properties throughout the United States. Under the terms of the joint-venture agreement, Lexington and the pension fund intend, over time, to contribute up to $50 million and $100 million, respectively, to the joint venture. In turn, the joint venture will seek to invest in office and industrial properties net leased to major corporations. The joint venture will invest up to approximately $425 million in real estate.
Total returns to shareholders during the period from its debut as a public company in 1993 through the end of last year was 98.8%, or 18.9% per year on average. Last year, FFO grew from $21. 5 million the year before to $35.7 million - on a per share basis, the increase was 8% from $1.39 to $1.50, the highest annual increase in the company's history. Meanwhile, revenues increased to $65.1 million from $43.6 million the prior year, and total assets climbed to $647 million, up from $468 million in 1997.
For the first half of 1999, FFO totaled $20.3 million, or $0.81 per share compared to $16.3 million, or $0.70 per share, for the same period the year before, a 15.7% increase in year-to-date FFO. Revenues for the six months ended June 30 notched upward to $38.1 million, compared to revenues of $29 million for the first six months of 1998. Net income hit $9.2 million, after gains on property sales, compared to $7.5 million the year before.
National Real Estate Investor thanks all sponsors who participated in the 1999 REIT Showcase. The following companies submitted their most recent annual reports or company brochures for display. To order copies of these reports, please call the sponsoring company.