Zell compared the current recovery to the economic circumstances of the early 1990s. He recalled that in early 1993, conventional wisdom had it that slow growth was in store for the economy for the foreseeable future. In fact, the economy was on its feet less than a year later. "We are moving slowly toward a recovery, somewhat on the pattern of the '92-93 period," he said. "I think that the pessimism that currently exists in the market is unjustified.

"Zero job growth in 2002 mirrors that of 1992," he continued. "Our estimate of job growth of 1% to 2% in 2003 is consistent with the 1.9% job growth in 1993. We are again in more or less of a jobless recovery [with] signs that the recession is over, but we haven't seen any job growth as yet."

Zell noted that the office section would "continue to bounce along the bottom" until companies begin hiring again. He said that a recovery for the office sector would emerge slowly, in the next 12 to 18 months or so.

In Equity news, Zell reaffirmed a pledge to have a new CEO in place at Equity Office by the end of this year. "We are very confident that we will meet that timetable," he said.

He also stressed that there was no cause for concern regarding Equity's dividends, dismissing published speculations about the subject. "Dividend coverage is more fluid than any of these articles point out," he asserted. "We have the ability to manage the business differently, if we felt at any point that our dividends were in jeopardy. Average occupancies would have to decline into the low 80% range before there would be any cause for concern. Our dividend level is very solid."

The comments came on the occasion of the release of Equity's third quarter 2002 numbers. For that quarter, the behemoth REIT reported a decline in results, matching analysts' expectations. Funds from operations fell nearly 5%, to $362.3 million, or 77¢ a share, compared with third quarter 2001 FFO of $379.7 million, or 79¢ a share.

Occupancy in Equity's vast office portfolio decreased during the third quarter, from 90% at the end of the second quarter of 2002 to 89.2% at the end of this quarter, which it attributed to early lease terminations totaling about 1.8 million sf. At the end of the third quarter in 2001, Equity's office occupancy rate was 93.7%.

Another measure of the drop in demand for office space can be found in the amount of early lease termination fees that Equity has collected thus far this year. In the first nine months of 2002, the REIT collected $107.2 million in such fees. Though $40 million of that is attributed to a single office deal that went sour, the total still dwarfs the $16.8 million in early lease termination fees that Equity garnered in the first nine months of 2001. "Total lease termination fees," Equity's 3Q02 report states, "are at levels significantly above the company's historical experience."

Instant Insights /

Zell Strikes a Note of Optimism on the Economy

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