Owners' Earnings Reports Show Some Optimism

LOS ANGELES-Despite lots of negative numbers in their financial results, some publicly held real estate companies and REITs that own office buildings have found cause for optimism in their quarterly earnings reports recently. Some are reporting smaller quarterly losses or, in the case of REITs, smaller declines in FFO.

Some of the companies mention encouraging signs on the leasing front, and many are focused on managing debt–often with significant successes to report. Among the REITs and publicly held office owners reporting quarterly results last week were Douglas Emmett, Maguire Properties, Thomas Properties Group and PS Business Parks.

At Emmett, president and CEO Jordan Kaplan said in the Santa Monica-based REIT’s earnings conference call that “leasing in our markets entered a transitional phase as fear of economic collapse faded, some optimism returned, and positive indicators surfaced.” Kaplan said that Emmett feels that “these encouraging signs will translate into a reasonable recovery in our leasing fundamentals in the not-too-distant future,” although the company recognizes that there are still obstacles to overcome before this will occur.<p.Kaplan noted that new office leasing activity increased significantly in the quarter, and the resurgence in tenant demand cut across many industry groups, such a healthcare, legal, insurance, financial services and entertainment. The rate of decline in the overall occupancy of the company's office portfolio slowed in the third quarter, declining by 30 basis points to 91.8%, the Emmett president and CEO said.

Emmett reported FFO of $47.8 million and 31 cents for Q3, down from $51.1 million and 33 cents from the comparable period last year. The company recored a net loss of $8.8 million and seven cents compared with a loss of $9.7 million and eight cents per share in last year’s third quarter.

At Thomas Properties Group, the company’s chairman, president and CEO, Jim Thomas, found positive signs both in how the company’s portfolio is performing in comparison with the industry and in how the Downtown L.A.-based company is managing its debt. Citing the “tough operating environment” of today, Thomas said that the company has reduced its exposure to near-term debt maturities by modifying and extending the loans on its Four Points Centre in Austin, TX and Campus El Segundo in El Segundo, CA, and in negotiating a payoff of the mezzanine loans at its 1.8-million-square-foot Commerce Square office complex in Downtown Philadelphia at a discount of approximately 30%. The Commerce Square deal will result in a $6.6 million reduction in annual interest expense.

Regarding the overall performance of the company’s portfolio, Thomas said that the company’s buildings in general are outperforming other office buildings in their respective markets. In addition, the Thomas Properties chief said, the company’s holdings generally are in office markets that are performing better than other US office markets.

Thomas Properties reported a net loss of $10.9 million and 43 cents per share for the third quarter, compared to a net loss of $2.9 million and 13 cents per share for the third quarter of 2008. The company reported after-tax cash flow of $500,000 and two cents per share compared to after-tax cash flow of $3.6 million and 15 cents per share for the third quarter last year.

At PS Business Parks, a Glendale-based REIT that specializes in multi-tenant flex, office and industrial space, the company reported net income of $8.8 million and 39 cents per diluted share on revenue of $67.7 million compared to income of $5.3 million and 26 cents a share on revenue of $71.6 million for the same period in 2008. FFO was $31.5 million and $1.04 per share, versus $32 million and $1.14 per share in last year’s third quarter. The company said that the decrease in FFO for Q3 this year was primarily due to a decrease in net operating income combined with the issuance of 3.8 million shares of common stock during the third quarter of 2009.

At Maguire Properties, the Downtown L.A.-based office REIT reported its third-quarter loss declined to $46.8 million and 97 cents per share from a loss of $72.5 million and $1.52 per share for the third quarter last year. This year’s negative FFO of $11.7million and 24 cents per share compared with negative $20.2 million and 42 cents per share in the FFO reported for the third quarter last year.