The Equity Office Properties Trust chairman says current times are "eerily similar" to late 1990 and early 1991, shortly before the US attacked Iraq in the first Gulf War. "2003 still has a lot of uncertainty, but we believe there's more of an upside than downside," Zell says during an earnings conference call Wednesday.

Zell's more optimistic view of his business stems from an expectation of 2% to 3% growth in gross domestic product in 2003, which should translate into job growth of about 1%. "Positive job growth is better than negative job growth," Zell notes.

Meanwhile, Zell expects interest rates to remain low in the near term, and inflation should remain "benign" at least through the first half of 2003.

The largest US office REIT may sell more than the $510 million in office assets than it did last year, Zell says, but there is no disposition target. Meanwhile, the lone two acquisitions of $92.3 million in Washington, DC are an example of the selectivity Equity Office Properties Trust plans to follow, he adds.

Instead of office properties, Equity Office Properties Trust is finding its own stock to be a better investment. It has repurchased $38 million in shares already this year after spending $197 million in 2002. The money is coming from asset sales that do not require Section 1031 exchanges, Zell says.

Occupancy continued on its steady descent across the 125.7-million-sf office portfolio, starting 2003 at 88.6%. That is down 3.2 percentage points in from the beginning of 2002, as well as 0.6 of a percentage point during the fourth quarter. Meanwhile, a 5.2% decline in new rents was seen in the fourth quarter, says president and chief executive officer Richard D. Kincaid. The REIT's rents are running about 8% to 10% above the market, Kincaid adds.

"We believe rents are overshooting on the down side as much as they were on the up side," Kincaid says.

Also, lease terminations shot up nearly 300% to $162 million last year, reports chief financial officer Marsha Williams. "We continue to have early lease termination conversations, and that activity has not abated as we had expected it would by this time," she adds.

Instant Insights /

Equity Office Plans to be Net Seller in 2003

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