The REIT, which manages and owns properties in 11 core markets, has a diluted FFO of 81 cents per share in comparison to last year's 72 cents per share. REIT officials say the increase is a result of a 5.1% same-store growth and success of a development program. Since its first operational quarter at the close of 1996, the REIT has experienced a 65.3% cumulative FFO per share growth.

"Our strong results for the quarter provide proof that we were able to keep our 'eye on the ball' despite the pending merger with Mack-Cali," says Thomas F. August, president and CEO. "Now that the merger has been terminated and Mack-Cali has paid the $25 million termination fee, we will pursue the same successful business plan that we were following prior to the merger." That plan calls for upping the cash flow by selling older or non-strategic properties and replacing them with new developments or value-added acquisitions in core markets, says August. In adjunct with the merger termination, announced Sept. 21, Prentiss has acquired the class-A, 270,7111-sf Cielo Center in southwest Austin from a Mack-Cali partnership for $47.2 million.

For this year's third quarter, the REIT is reporting $24.2 million in income before gain on sale and minority interests in comparison to last year's $18.7 million. The bulk of the 29% increase has been derived by the $4.1 million net on the Mack-Cali termination fee. The non-recurring income has been placed into escrow and carries a five-year drawdown condition. The REIT's third quarter 2000 net income totals $18.3 million.

As of Sept. 30, Prentiss Properties had five office projects, totaling 645,000 sf, under construction, which carry a $112.7-million price tag. The REIT has incurred $79.7 million of the cost to date for the projects. The company's development pipeline is 80% leased and 97% leased or committed, with expected first-year, cash-on-cash returns of 11.3% and FFO yields 100 to 150 basis points higher.

During the third quarter, the 148,000-sf Research Office Center III project has been completed while the REIT has started a 59,000-sf, $10.5-million build-to-suit office project for Salton Inc. in the Chicago area. In the third quarter, the REIT also has broken ground on a $37.6-million, class-A office development, the 182,000-sf Willow Oaks III, in Fairfax County, VA. Prentiss had started the corporate office park, which presently contains 387,469 sf in two buildings, in 1998. Willow Oaks III is slated for completion in December 2001.

As of Sept. 30, Prentiss Properties Trust had owned approximately 91.2 acres of developable land that could accommodate 3.6 million sf of leasable space on sites adjacent to existing company-owned properties. All but one site is feasible for office development. The REIT controls additional land through purchase and sale agreements, options and rights of first refusal that can accommodate another 2.7 million sf of office development.

Earnings before interest, taxes, depreciation and amortization (EBITDA) for the third quarter 2000 has been $57 million, an 11% increase over third quarter 1999. EBITDA from its remaining industrial portfolio rests at 7.5% and EBITDA from non- core markets, 7.1%.The REIT's third-quarter acquisitions include the class-A, 200,994-sf Lake Merritt Tower in Oakland, CA, for $63.3 million. The purchase includes a 2.5-acre tract that is ticketed for development within 12 months, with pre-leasing efforts already under way.

Austin's Cielo Center and Oakland's Lake Merritt Tower are the only acquisitions to date this year. The REIT has sold about $69 million of non-strategic assets, with another estimated $167 million in sales expected by early 2001. Proceeds will continue to be used to pay down debt, fund new development and make value added acquisitions.

The REIT's occupancy rests at 95%. About 501,000 sf of office portfolio leases had expired in the third quarter, with 518,000 sf in leases being renewed or newly leased. The industrial portfolio had been 94%, up 1% from last year.

Third-quarter financing saw the closing of a $49.5-million, 10-year loan with Metropolitan Life Insurance Co. The debt is secured by The Ordway, a 531,000-sf office project in Oakland, CA. By the quarter's close, Prentiss Properties Trust's outstanding debt had totaled $1.08 billion, including its share of unconsolidated joint venture debt, at an average interest cost for the quarter of 7.61%, including all fees and hedging costs. Of this amount, $896.4 million was fixed rate, including $160 million that was hedged. The book value of assets, at the close of the third quarter, total $2.18 billion, including unconsolidated joint venture assets, an 8% increase from the prior year. Total market capitalization is $2.32 billion.

On Oct. 13, the REIT's quarterly dividend of $0.485 had been paid to shareholders of record as of Sept. 30. The quarterly dividend represents an annualized dividend of $1.94 per share and a yield of 7.4% on the Sept. 30 share price of $26.125. The FFO payout ratio has been 60%. Non-incremental capital expenditures for the quarter have totaled $5.8 million, of which $736,000 has been in capital improvements to properties while $5.1 million represents costs for leasing and tenant improvements. The Funds Available for Distribution have totaled approximately $26.5 million for the quarter, after deducting non-incremental capital expenditures and adjusting for straight-line rent and other amortization. The third quarter dividend represents a 77% payout of FAD.

Prentiss Properties owns interests in 180 operating properties with approximately 18.5 million net rentable sf and five development projects containing 645,000 sf. The REIT 's real estate services subsidiary is one of the 20 largest managers of office and industrial properties in the US, managing approximately 41 million sf of office and industrial properties owned by Prentiss, its affiliates and third parties. Headquartered in Dallas, the REIT has regional management offices in Los Angeles, Dallas, Chicago, Washington D.C. and Philadelphia.

Instant Insights /

Prentiss Properties' Third-Quarter Results Stay Upward Course

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