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SAN MATEO, CA-Glenborough Realty Trust on Thursday reported a drop in profit and Funds From Operations during the third quarter despite improved performance in its 8.3-million-sf, 45-property portfolio. The locally headquartered office REIT in August agreed to be acquired by a Morgan Stanley Real Estate affiliate in a transaction valued at $1.9 billion ($26 per share plus debt assumption).
Glenborough's net income for the third quarter of 2006 was $11.5 million, or $0.36 per diluted common share, which is less than half the $26.8 million or $0.74 per share generated during the third quarter of 2005. The decline in net income is being attributed primarily to fewer gains on sales of the company's properties. The company reported $13.9 million in net gains from property sales during the third quarter of 2006 compared to $27.6 million in net gains in the third quarter of 2005.
FFO for the just completed quarter--excluding $3.5 million in merger related transaction costs and debt extinguishment--was $13.9 million, or $ 0.39 per diluted common share, which is only slightly below the $15.7 million or $0.40 per diluted common share of FFO generated in the third quarter of 2005. The FFO results for 2006 exclude the aforementioned net gains from real estate sales.
Glenborough's largest markets are Washington, DC (28% of net operating income), Southern California (22%), Northern New Jersey (14%), Boston (12%) and San Francisco (10%). The company's overall portfolio occupancy at the end of September was 94.4%, up from 89.9% in the third quarter of 2005.
Same-store net operating income increased by 1.6% during the quarter as compared to the third quarter of 2005 and same-store occupancy increased to 93.5% from 91%. Tenant retention for the quarter was 71% and effective rents on renewals were up 9.9% from the expiring rents. For the year, same-store NOI is up 3% on a 5.8% increase in rents. Leases representing more than 40% of the company's square footage expire over the course of the next three years.
Glenborough's year-to-date 2006 profit is $46.2 million, or $1.42 per diluted common share. Through the first nine months of 2005, the company posted a net loss of $5.7 million, or $0.16 per diluted common share. Year-to-date 2006 FFO was $39.0 million, or $1.10 per diluted common share, as compared to negative FFO of $16.6 million, or $0.42 per diluted common share in 2005.
As of the end of September, Glenborough had $728.6 million of debt with a 42% ratio of debt to total market capitalization. Secured, fixed-rate debt comprised 86% of all debt outstanding at quarter-end. The average interest rate on all debt is 5.7%.
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