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CHICAGO-Locally based Equity Office Properties Trust is looking to sell $2 billion to $2.5 billion in properties during the next six to 12 months. According to Richard D. Kincaid, Equity president and CEO, dispositions under consideration include certain assets in Chicago, Denver and Northern California. The sale will also include properties in Atlanta--a market the company is planning to exit.
"Based on our overall strategy, there just better places to invest our capital," Kincaid said during the company's second-quarter earnings call Tuesday. Kincaid says the company plans to hire a third-party manager to help with the Atlanta disposition, and EOP will be completely out of Atlanta by early 2007. The proceeds of the sale will go toward paying off debt.
According to a BofA analysis, the decision to release assets in these markets will prove to be a positive move. "We view its decision to sell assets in Denver, Chicago, and N. California as a long-term positive, assuming EOP obtains current market pricing, as we do not view these markets as having favorable supply/demand characteristics," stated the report, which was released this morning. "Atlanta is another market we view as difficult to own long-term, given this is a market with relatively low barrier to new development."
Kincaid says the company is also reducing the size of its overhead costs and will streamline its organizational structure away from a regional approach to a more corporate strategy. With the elimination of 360 positions, which includes the termination of all regional vice presidents, the company will save $35 million to $40 million, Kincaid says.
For the second quarter 2006, FFO available to common shareholders totaled $225.7 million, or 55 cents per share on a diluted basis. FFO for the same period in 2005 totaled a net loss of $98 million, or 22 cents per share on a diluted basis. Second quarter 2005 FFO included non-cash impairment charges and losses on assets sold.
For the six months ended June 30, FFO available to common shareholders totaled $452.1 million, or $1.10 per share on a diluted basis. FFO for the same period in 2005 totaled $199.5 million, or 44 cents per share on a diluted basis. The company also leased 4.8 million sf, compared to 5.6 million sf in second quarter 2005 on a larger portfolio. For the first six months of 2006, the company leased 9 million sf, compared to 10.4 million sf for the same period in 2005.
Kincaid says that with the improvement in most markets, namely Chicago, Washington DC and New York tenant improvements and leasing costs for leases were $18.02 per sf compared to $21.71 per sf in the same period last year.
YTD as of July 31, 2006, EOP completed $1.1 billion in investment activity, acquiring 1.6 million sf for $690.2 million, and selling 2.7 million sf of office space and one land parcel for $433.9 million. The net gain on sales of real estate was $117.4 million.
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