Equity Office Sees Limited Acquisition Activity

CHICAGO-Reflecting strong performance throughout its huge 99 million-sf national office portfolio, Equity Office Properties Trust, based here, reported strong increases in lease rates on both a gross and net basis for the third quarter. In a conference call with analysts this morning, management said it is looking at joint venture opportunities within the existing Equity Office portfolio, but investors can expect to see limited acquisitions in coming months as the trust focuses on paring down debt.

“We expect continued strong fundamentals,” Equity Office president Tim Callahan told analysts. “But we will see some weakening in demand.” Management said it expects rental rates in the trust’s portfolio to increase on average by 3% next year, with markets like Dallas and San Francisco showing no growth in rental rates. The trust said absorption continued extremely strong this year and the prelease rate in the trust’s development pipeline was 40% in the third quarter.

Following the acquisition of Cornerstone Properties this summer, management said that the credit rating agencies are very focused on the trust paring down its large debt load. Financing activity resulted in a significant decrease in floating rate debt in the quarter to 12%, with fixed rate debt being 88%.

In response to analyst questions about Equity Office’s potential interest in trophy properties currently available in the New York market, management said that debt concerns were making the trust cautious on any acquisition activity. Management said that analysts could expect Equity Office to be in fewer markets going forward as the trust disposes of assets it views as non-strategic. If there is any significant acquisition activity, management said it would likely be on a joint venture basis. Management also said it is currently looking at JV opportunities in Equity Office’s existing portfolio, with proceeds being used to pay down debt.

Per share third quarter per share FFO rose 14.3% to 72 cents, while third quarter revenues increased by 30% to $641 million due mostly to the Cornerstone merger. Gross rental rates rose 25% in the quarter, while rates on a net basis soared 40%. Management guidance on 2001 per share growth is $3.15 to $3.20, while 2002 is $3.45 to $3.50 per share