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REIT Returns Tied to Tenants Nicholas Yulico, Street.com 10-05 The health of tenants not only is an important factor for commercial real estate landlords' profits; it is also closely tied to their stock prices. New research from Bank of America shows that the stocks of office real estate investment trusts are generally correlated to the stocks of financial-related companies, which tend to make up a good portion of their tenant bases. In addition, retail REITs, which own malls and shopping centers, are well correlated to retailer stocks, according to the report from analyst Christy McElroy. Over a three-year and five-year period, the correlation between office REITs and the S&P IBK/Brokerage and Financial indices is around 0.95. In measuring correlation, a reading of 1.0 suggests the two sectors' stock prices move in the same direction at all times. Thus, the 0.95 reading means that office REITs and financial stocks are nearly always moving in lockstep fashion. Retail REITs and retailer stocks are also well correlated over thee-year and five-year periods. Mall REIT stocks have a 0.86 to 0.96 correlation with the S&P Retail index over this time period. How is this information useful to investors? Well, for one, it shows how owning stocks in both sectors reduces diversification. It also suggests that investors can develop long/short trading strategies by using stocks and exchange-traded funds to hedge against losses. Industrial Property Update PRNewswire 10-29 ProLogis released two semi-annual research reports on the state of the U.S. industrial property market. The first, the company's U.S. Property Market Review, indicates that market conditions for industrial developers are holding steady throughout most of the United States. The average industrial vacancy rate across the country's top 30 markets remained at 7.6% in the first half of 2007, unchanged from the prior period. Asking rents, meanwhile, rose at a 6.6% annual rate during the first six months of the year. Net absorption totaled 60 million square feet during the period, representing a 2.5% increase in occupied space on a per annum basis. Notably, net absorption in many of the country's tightest markets is limited by a lack of available supply. The second report, entitled U.S. Construction Pipeline Report, shows that new industrial construction remains disciplined. New starts totaled 67 million square feet, compared with 63 million square feet in the latter half of 2006. At that pace, 2007 full-year starts will total approximately 2.5% of existing inventory, which is low by historical standards. The vast majority of new projects are being built on a speculative basis. About 81% of the buildings under construction at mid-year were inventory projects, while only 19% were build-to-suits. AMB reported Q2-07 FFO of $104.235 million [$0.99/share] as compared to $68.286 million [$0.72/share] for Q3-06. The increase was primarily the result of better-than-expected profitability on development projects contributed to AMB's private capital funds and strong core operating performance. Rents on lease renewals and rollovers in AMB's operating portfolio increased 8.9%, as compared to increases of 2.0% in the prior quarter and 9.9% in Q3-06. Cash-basis same store net operating income increased 5.3%. EGP reported Q2-07 FFO of $19.0 million [$0.80/share] compared with $15.818 million [$.70/share] for Q3-06. The increase was due to higher property net operating income combined with $.04/share in termination fees. Property net operating income from same properties increased 6.5% or 6.1% before straight-line rent adjustments. Rental rate increases on new and renewal leases (5.8% of total square footage) averaged 11.7% for the quarter; 2.2% before straight-line rent adjustments. FR reported Q2-07 FFO of $57.195 million {$1.13/share] compared with $50.962 million [$1.00/share] in Q3-06. SSNOI grew 4.8% on a cash basis, up from 2.9% in Q3-06. Excluding lease termination fees, cash basis SSNOI increased 3.2%. FPO reported Q3-07 FFO of $10.1 million [$0.41/share]compared to $9.9 million [$0.41/share] in Q3-06. SSNOI on a cash basis was $17.789 million compared to $17.799 million in Q3-06. GAAP basis rental rates per square foot increase 8% and 11% for new and renewal leases, respectively. LRY reported Q3-07 FFO of $76.426 million [$0.80/share] as compared to $75.078 million [$0.79/share] in Q3-06. SSNOI increased by 1.6% on a cash basis and by 0.8% on a straight line basis compared to Q3-06. Same store results for Q3-06 reflected the positive impact of a $2 million bankruptcy settlement. During the quarter, LRYbrought into service four development properties for a total investment of $73.0 million and began development of five properties totaling 1.3 million square feet, with an expected total investment of $87.8 million. PLD reported Q3-07 FFO of $376.155 million [$1.41/share] as compared to $202.054 million [$0.79/share] in Q3-06. SSNOI increased by 5.4% (a 5.9% increase when straight-lined rents and lease amortization are excluded), driven by 2.7% growth in average same-store occupancies and same-store rent growth of 9.6%. PLD recycled $3.2 billion of capital from CDFS [real estate development primarily with the intent to contribute to a property fund] contributions and dispositions during the quarter. Including non-CDFS disposition activity, total dispositions and contributions were $3.3 billion for the quarter. PLD realized FFO from CDFS transactions of $230.1 million, up from $92.8 million in Q3-06. During the quarter, PLD began construction of $797.9 million of new industrial development, including development activity within its industrial joint ventures. PLD's total CDFS pipeline stood at $6.2 billion at the end of the quarter, a 16.1% increase over December 31, 2006. Q2-07 FFO Growth: AMB reported Q2-07 FFO of $78.474 million [$0.74/share] compared to $82.355 million [$0.87/share] in Q2-06. EGP reported Q2-07 FFO of $17.494 Million [$0.74/share] compared to $15.240 million [$0.69/share] in Q2-06. FR reported Q2-07 FFO of $59.568 million [$1.17/share] compared to $56.905 million [$1.12/share] in Q2-06. FPO reported Q2-07 FFO of $10.4 million [$0.42/share] compared with $8.4 million [$0.39/share] in Q2-06. LRY reported Q2-07 FFO of $72.846 million [$0.79/share] compared to $72.197 million [$0.80/share] for Q2-06. PLD reported Q2-07 FFO of $309.905 million [$1.16/share] compared to $229.262 million [$0.90/share] in Q2-06. ARE reported Q3-07 FFO of $42.723 million [$1.45/share] compared to $35.230 million [$1.32/share] for Q3-06. Same property revenues less operating expenses were up 4.1%. GAAP rental rate increase was 7.4% on renewed/released space. As of September 30, 2007, approximately 89% of ARE's leases (on a square footage basis) were triple net leases. BDN reported Q2-07 FFO of $62.0 million [$0.68/share] compared to $63.7 million [$0.67/share] in Q3-06. SSNOI increased 2.3% on a GAAP basis and 2.7% on a cash basis versus Q3-06. BDN's core portfolio retention rate was 74.2% with negative net absorption of 17,502 square feet. BDN achieved a 2.9% increase on renewal rental rates and a 0.3% increase attributable to new lease rental rates, both on a GAAP basis. At the end of Q3-07 BDN was actively proceeding on seven ground-up office developments and eight office redevelopments with a total identified cost of $862.1 million of which $458.0 million remained to be funded. BMR reported Q3-07 FFO of $30.8 million [$0.45/share] compared to $30.0 million [$0.47/share] in Q3-06. BMR's Operating portfolio was at 6.626 million sq ft - 93% leased. Repositioning and redevelopment properties were 1.871 million sq ft. Construction in progress were 1.941 million sq ft. Land bank parcels had the capacity for 1.293 million sq. ft. Total proforma portfolio 11.732 million sq ft. BMR was 72% pre-leased on their four development projects. From the BMR Conference Call: Leasing in Q3-07 was done with 21 tenants and done in all core markets. SSNOI was up 4.2% [excluding properties under redeveopment] due to 210 basis point increase in occupancy. SSNOI in Q2-07 would have been up 2.6% had BMR excluded properties under redevelopment. Average lease terms were 8.1 years. Boston properties represented 25% of revenues. For the strong Boston market, there is 7% vacency in life science properties with strong absorption. Rents are at $70-$80/sq.ft range without TIs while rents are at $60-$70/sq ft at Cambridge - but with TIs. Analyst Question: Due to strong development - BMR is 'capitalizing' interest at the rate of 22 cents/share/quarter - or 88 cents/share/year. When redeveopment is finished and capitalization of interest stops, will you only gain 60-80 cents/share in FFO? BMR: There is a 6% rate of interest costs - but there is much higher yields on property than the cost of interest. BMR has had 30% average rent spreads the past few quarters - and expects 3% yearly rent growth going forward. BXP reported Q3-07 FFO of $139.1 million [$1.15/share] (after a supplemental adjustment of $2.7 million [$0.02/share] to exclude the loss from early extinguishment of debt associated with the sale of real estate and write-off of costs related to an abandoned suburban development project of $4.5 million [$0.03/share]) compared to $137.3 million [$1.19/share] in Q3-06. CLI reported Q3-07 FFO of $$77.5 million [$0.93/share] versus $67.1 million [$0.86/share] for Q3-06. Included in FFO was $7.1 million ($5.8 million, after deduction for minority interest) [$0.06/share] in a lease termination fee, partially offset by a write-off of $2.1 million ($1.7 million, after deduction for minority interest) related to a development project no longer considered viable. SSNOI was $101.204 million compared to $98.395 million in Q3-06 - up 2.9%. At the end of Q3-07 CLI had 3 properties under construction and had spent $112.722 million out of a budget of $803.137 million - and those properties were 16.1% pre-leased. CLI had total indebtedness of approximately $2.1 billion, with a weighted average annual interest rate of 6.14%. DRE reported Q3-07 FFO of $93.673 million [$0.68/share] compared to $88.787 million [$0.65/share] in Q3-06. Same property net operating income increased 2.8% over Q3-06. DRE renewed 81% of leases up for renewal, totaling 2.9 million square feet, on which net effective rents increased 7.6%. DRE's value creation pipeline totaled $2.0 billion, including $773 million of developments with an expected stabilized return of 9.2% that DRE plans to own indefinitely; $1.1 billion of developments with an expected stabilized return of 8.5% that DRE plans to sell; and a $182 million backlog of third-party construction volume with a 15.0% fee. HIW reported Q3-07 FFO of $36.1 million [$0.59/share] compared to $32.8 million [$0.53/share] for Q3-06. Excluding $1.2 million [$0.02/share] in charges related to the repurchase of $22 million of 8.625% preferred stock in August 2007 and a building impairment, FFO would have been $0.61/share in Q3-07. This compares to FFO of $0.59/share in Q3-06 after excluding $3.3 million [$0.06/share] of charges for a loss on a debt extinguishment and a building impairment. SSNOI from continuing operations increased 3.2%. Average in-place cash rental rates across HIW’s total portfolio rose 6.2% compared to Q3-06. HIW has a $500 million development pipeline thatis 75% pre-leased. HRP reported Q3-07 FFO of $62.9 million [$0.29/share] compared to $62.0 million [$0.30/share] in Q3-06. SSNOI was $120.715 million compared to $122.337 million in Q3-06 - a decrease of 1.3%. Total Property NOI was $128.449 million compared to $122.323 million in Q3-06. HRPT signed 248 New leases with an average 26% increase in GAAP rents and 1,235 Renewals with an average increase of 6% in GAAP rents, for weighted average rental rates that were 9% above prior rents for the same space. Average lease terms for leases signed were 7.7 years. KRC reported Q3-07 FFO of $28.2 million [$0.81/share] compared to $26.5 million [$0.76/share] in Q3-06. GAAP SSNOI was $44.339 million compared to $45.670 million in Q3-06 - a decrease of 2.9%. Cash SSNOI was $42.873 million compared to $44.437 million in Q3-06 - a decrease of 3.5%. During the quarter KRC had signed 22 new leases and 17 renewals for an average increase in rents of 7.1%. Lease retention was 61.7% and the average lease term was for 59 months. KRC has three buildings under construction [42% pre-leased] that represent a total investment of $137 million, of which $81 million has been spent to date. KRC has two redevelopment projects underway [49% leased] that represent a total incremental investment of $26 million, of which $16 million has been spent to date. MPG reported Q3-07 FFO of $8.9 million [$0.19/share] before loss from early extinguishment of debt compared to $24.4 million [$0.51/share] before loss from early extinguishment of debt for Q3-06. At the end of Q3-07 MPG had 87% of outstanding debt fixed (or swapped to a fixed rate) at a weighted average interest rate of approximately 5.6% on an interest-only basis with a remaining term of approximately eight years. OFC reported Q3-07 FFO of $23.856 million [$0.58/share] compared to $19.173 million [$0.46/share] in Q3-06. Included in Q3-06 FFO was the accounting charge of $1.8 million [$0.04/share] for the Series E preferred share redemption. SSNOI remained flat compared to Q3-06, despite a $1.3 million drop in same office termination fees. Excluding the effect of termination fees, SSNOI would have increased 2.6%. During Q3-07 312,000 square feet was renewed, equating to a 73.3% renewal rate, at an average capital cost of $5.58 per square foot. Total rent on renewed space increased 7.8% on a straight-line basis and 2.1% on a cash basis. For renewed and retenanted space of 401,000 square feet, total straight-line rent increased 7.5% and total cash rent increased 1.7%. PSB reported Q3-07 FFO of $31.0 million [$1.07/share] compared to $26.8 million [$0.93/share] in Q3-06. The application of EITF Topic D-42 cut Q3-06 FFO by $0.05/share. SSNOI was $47.326 million compared to $42.482 million in Q3-+06 - an increase of 11.4%. PKY reported Q3-07 FFO of $15.0 million [$0.96/share] to $13.1 million [$0.90/share] in Q3-06. FAD totaled $10.6 million compared to $4.8 million in Q3-06. SSNOI increased $1.2 million or 5.3% compared to Q3-06 due to increases in same store average occupancy from 90.3% during Q3-06 to 91.7% during Q3-07. while same store rental rates increased 2.5% during the same period. PKY's customer retention rate for Q3-07 was 69.8% compared to 81.0% for Q2-07 and 73.8% for Q3-06. During the quarter, 70 leases were renewed or expanded at an average rental rate increase of 0.1% on a cash basis, while 42 new leases were signed [no spread given]. SLG reported Q3-07 FFO of $77.820 million [$1.25/share] compared to $55.547 million[$1.13/share] in Q3-06. GAAP SSNOI grew of 9.0%. SLG increased average Manhattan office starting rents by 59.5% over previously fully escalated rents reflecting continued growth in rents for Manhattan office leases. SLG increased average Suburban office rents by 15.0% over previously fully escalated rents for Suburban office leases signed during the third quarter. VNO reported Q3-07 FFO of $221.2 million [$1.35/share] compared to $204.5 million [$1.31/share] in Q2-06. FFO as adjusted for comparability [subtracting mark to market gains on McDonalds and ALX shares, gain on land sales, and one time litigation costs in Q3-06] were $199.666 million [$1.22/share] compared to $162.373 million [$1.04/share] in Q3-06. ARE reported Q2-07 FFO of $41.607 million [$1.42/share] compared to $29.227 million [$1.26/share] in Q2-06. BDN reported Q2-07 FFO of $59.0 million [$0.65/share] compared to $57.0 million [$0.60/share] in Q2-06. BMR reported Q2-07 FFO of $33.8 million [$0.50/share] compared to $22.3 million [$0.41/share] in Q2-06. BXP reported Q2-07 FFO of $142.9 million [$1.18/share] compared to $129.4 million [$1.10/share] in Q2-06. CLI reported Q2-07 FFO of $73.2 million [$0.88/share] versus $74.4 million [$0.95/share] for Q2-06. DRE reported Q2-07 FFO of $93.479 million [$0.63/share] compared to $86.542 million [$0.58/share] in Q2-06. HIW reported Q2-07 FFO of $35.6 million [$0.58/share] compared to $32.5 million [$0.54/share] in Q2-06. HRP reported Q2-07 FFO of $62.6 million [$0.29/share] compared to $62.7 million [$0.30/share] for Q2-06. KRC reported Q2-07 FFO of $26.7 million [$0.77/share] compared to $37.6 million [$1.11/share] in Q2-06. MPG reported Q2-07 FFO of $(2.4) million [$(0.05)/share] and if one excluded a $33.9 million gain on sale of real estate the FFO was ($0.62/share) compared to $18.8 million [$0.41/share] in Q2-06. OFC reported Q2-07 FFO of $31.8 million [$0.57/share] compared to $.49 or $25.2 million [$0.49/share] for Q2-06. PSB reported Q2-07 FFO of $30.0 million [$1.03/share] compared to $25.2 million [$0.87/share] in Q2-06. PKY reported Q2-07 FFO of $14.8 million [$0.94/share] compared to $17.9 million [$1.23/share] for Q2-06. SLG reported Q2-07 FFO of $79.513 million [$1.26/share] compared to $57.194 [$1.22/share] in Q2-06. VNO reported Q2-07 FFO of $151.6 million [$0.96/share] versus $148.8 million [$0.99/share] in Q2-06. On 12-19 KeyBanc Capital Markets Downgraded CLI and SLG from Buy to Hold, and Upgraded PSB from Underweight to Hold. On 12-04 CLI declared a dividend of $0.64/share to be paid on January 14, 2008 to shareholders of record as of January 4, 2008. On 12-05 FR increased its dividend to $0.72/share payable Jan. 22 to shareholders of record Dec. 31st. On 12-06 KRC declared a dividend of $0.555/share payable on January 18, 2008 to stockholders of record on December 31, 2007. On 12-06 OFC declared a dividend of $0.34/share to be paid on January 15, 2008 to shareholders of record on December 31, 2007. On 12-11 BDN declared a dividend of $0.44/share payable on January 18, 2008 to holders of record on January 4, 2008. On 12-14 ARE declared a distribution of $0.78 to be paid Jan. 15 to shareholders of record Jan. 2. On 12-14 BMR declared a distribution of $0.31 to be paid Jan. 15 to shareholders of record Dec. 31. On 12-17 MPG declared a dividend of $0.4766/share payable on January 31, 2008 to preferred stockholders of record as of December 31, 2007. On 12-18 BXP declared a dividend of $0.68/share payable on January 30, 2008 to shareholders of record as of the close of business on December 31, 2007 and declared a special cash dividend of $5.98/share due to the sales of assets in 2007. On 12-18 AMB declared a dividend of $0.50/share payable on January 7, 2008 to stockholders of record at the close of business on December 21, 2007. On 12-18 PLD declared an increased dividend of $0.5175/share [with no dates given]. On 12-18 LRY declared a dividend of $0.625/share to be paid on January 15, 2008 to shareholders of record on January 1, 2008. On 11-05 PSB declared a dividend of $0.44/share payable December 31, 2007 to shareholders of record on December 17, 2007. On 11-08 PKY declared a dividend of $0.65/share payable 12-26 to shareholders of record on 12-12-07. On 10-24 HIW declared a dividend of $0.425/share payable on December 3, 2007, to shareholders of record as of November 12, 2007. On 10-16 FPO declared a dividend of $0.34/share payable on November 9, 2007, to common shareholders of record on October 31, 2007. On 11-01 PLD declared a dividend of $0.46/share payable on November 30, 2007, to shareholders of record on November 14, 2007. NOTE #1: This page is ment to be a supplement for those already getting monthly sector updates from another source. Data entry errors sporadically happen here. There are metrics like SSNOI growth, debt/market cap, agency ratings on debt, organic growth in process to total market cap, and other ratios that should not be ignored but are not covered here. NOTE #2: The operator of this site owns shares in AMB, OFC and VNO - and this could distort the coverage of those REITs. Home Page Previous REIT Update Top Sites |