Meanwhile, occupancy in Equity Office's 128.2-million-sf portfolio fell to 91.8% in the fourth quarter, 1.9 percentage points off the third quarter and 2.8 points from the previous year.

"I'd like to tell you things have bottomed out," says president and chief executive officer Tim Callahan. "But it's too early to tell."

Although Equity Office leasing agents saw a pick-up in activity last month, the previous quarter saw corporate decision paralysis shelving plans or putting them on hold, Callahan notes. Vacancies could rise another percentage point or two, he adds, before a pick-up in the fourth quarter.

Funds from operations in 2002 will range from $3.10 to $3.30 per share, says chief operating officer Richard Kincaid. "It'll be a question of occupancy," Kincaid adds. "The primary determinant of our earnings will be occupancy."

Specifically, the low end of the range is based on an end-of-the-year occupancy of 90.7%, Kincaid explains, while the $3.30 per share goal could be achieved with a 94% occupancy rate.

Rents fell 20% in 2002 across the portfolio, Kincaid says, including 7% since the third quarter.

Equity Office stock fell 2.54% Tuesday to $28.01 per share. The REIT's stock now yields 7.14%.

The REIT has no acquisition or disposition targets, conceding selling properties may be easier than buying in 2002. "There are no distress sellers in the property type we favor," Callahan says. Meanwhile, continued good financing terms and availability makes for a good environment to sell non-core properties, he adds.

Locally, Equity Office has a 1.1-million-sf leasing goal in the Chicago market, and is halfway there, Callahan says. "The Central Business District, in general, has been relatively stable," he adds. "The suburban markets have been hit hard by layoffs."

One trend has been a shortening in leases, Kincaid says. The average lease term has dropped from 5.6 years to 5.1 years, but the REIT also is delivering more space "as is," cutting its leasing costs.

"We're trying to shorten the duration where we can in weaker markets," Kincaid adds.

Instant Insights /

Equity Office Aims to Pick Up Occupancy

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