Property Exec Reflects
On a Whirlwind Quarter

Information on this page is provided by GlobeSt.com.

Tim Callahan, after four months on the job as Trizec Properties' president and CEO, finally found himself with enough time for press interviews. It's been a whirlwind quarter for Mr. Callahan, who left Equity Office in mid-year '02 to assume the role of the fledgling real-estate investment trust. Fledgling indeed, but in no way small. The REIT boasts some 72 office properties -- 49 million square feet -- in key markets around the nation. Mr. Callahan's been on the road for a good amount of this time, meeting the people in the field and grappling with issues of investor credibility and performance. Clearly, as he states, this credibility issue is key to the trust, which failed to meet its recent performance targets. (For the record, Trizec's FFO for Q3 '02 was $62.6 million as opposed to the $91.9 million posted for the year earlier.) He explains that many of the credibility issues were inherited, such as the firm's investment in Global Switch, a tech move he labels as company "mis-step." Mr. Callahan spoke with me on the eve of a national meeting of company leaders on these and other matters pertinent both to the CEO's office and to the direction of the company as a whole.

GlobeSt.com: You've said '03's going to be a challenging year. How so in specific terms of Trizec?

Callahan: Generally we face the same issues that everyone in the office sector, and I guess all property sectors, faces, and that's the general economy. Everyone has been anticipating the turn, but it has just not occurred. Our December projections for 2003 are indicative of our belief that the economy -- especially as it relates to job formation -- is going to be flat to down for most of the year. Beyond that, we have other issues, such as our credibility in the marketplace. When fundamentals do firm up and the market starts to move forward, there may still be a lag for us until we convince investors of our credibility by delivering quarter-to-quarter results. We don't anticipate a quick fix on that. But we've met with our people around the country and we have a two-day national meeting coming up to enforce the fact that we are all about delivering results on a steady, predictable basis. That's a challenge beyond the economy that Trizec has this year.

GlobeSt.com: How did the credibility issue evolve?

Callahan: Unfortunately, it comes as a result of mis-steps outside of our core competency. We're a very good office company and have been viewed as such over a long period of time, but not unlike a lot of other people during the tech boom, we stepped into other investments outside our core, and some of those mis-steps hurt us. Then we formed the REIT and went public in May of last year and followed that by missing our earnings in the subsequent quarter. That combination of events poses a question in the eyes of a lot of investors as to where this company is headed. In this environment, predictability is key. We haven't given that to the market to date.

GlobeSt.com: The national meeting is a step toward building that credibility?

Callahan: We're bringing some 200 senior managers and property people to Chicago to focus on the challenges and strategies for '03 and beyond. We'll be reviewing a variety of things we're doing today and talking about our future. Our people are energized and looking to recapture some of the credibility that Trizec has had in the past. They'll bring that message back to their offices so all 1,100 employees are informed as to where we're going and how we will get there.

GlobeSt.com: Despite the issues of credibility, the REIT-ization was very well timed, no?

Callahan: It was not only a good time, but it was also something that was overdue for the company. I had been watching Trizec from not-so afar for a couple of years and one of the challenges the company had was the holding-company structure. The reorganization with the intention of having a separate, distinct US REIT paying a competitive dividend was the right move and well-timed. I do firmly believe that, although it's been a period of stress, one of the good things to come out of this economy is a renewed focus on core earnings and income. As people move away from getting 30% and 40% returns and again see 6%, 7% and 8% returns as solid, REITs will be very-well positioned. It was the right time to do it.

GlobeSt.com: You've been quoted as saying that the REIT is taking steps to increase its liquidity and take advantage of value-creation opportunities as they emerge. Explain, please.

Callahan: That's going to be one of the issues in the meeting. It's a back-to-basics message. Although it's a tough economy, it's an opportunity for Trizec to regain its credibility by delivering those consistent quarter-to-quarter earnings.

GlobeSt.com: What does it mean in terms of specific strategies?

Callahan: We have an advantage in that we have a high-quality, broad-based portfolio across seven core markets. The challenge is to figure out ways to capture that information, bring best practices to the forefront and gain operating efficiencies at all levels of the organization. We have started that, and we have some things in motion. But, once again, this is the year to build delivery on some of those programs and expand on them. We want to be perceived as one of the leaders at local and regional levels.

GlobeSt.com: So it won't be a year of expansion into new markets?

Callahan: We don't need to think in terms of expansion for this year. Over time, there will be an expansion of our capabilities. I'm not sure there will be an expansion of market area. We're in the key markets we need to be. Also, as the market begins to firm up you'll see more focus on reallocating capital in terms of some sales that will help us reduce our debt position and move some of the capital that's in noncore markets and noncore properties in key markets. And you will see more activity in that level.

GlobeSt.com: What's the latest on the Sears Tower?

Callahan: We're anticipating becoming the owner this year -- in the very short term. It's subject to some documentation that's taking place now.

GlobeSt.com: Why did you bring the headquarters back to Chicago? And don't you think that sort of reversal displays some indecision on the part of management?

Callahan: A lot's been made of that. But I saw it as an obvious move from day one. We have a vast number of people here and only a small corporate staff in New York. My operating style has always been to see one another face to face on a regular basis, so having everyone in one headquarters office was the way to go. In terms of any perception of indecision, there was no consternation that I am aware of. We have more important challenges to face.

GlobeSt.com: You mentioned credibility. There were rumors circulating about why you left Equity, and not all of them pretty. Care to comment?

Callahan: Look, I'm very proud of what I accomplished at Equity. I had 10 years working at Sam's companies, and it was an excellent time of growth and exposure to new experiences. But it was time to move on. I'm proud of what I did, and now I'm very focused on Trizec.

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