Poor REIT Results
Show Sector Weakness

The worst isn't over for the beleaguered commercial real-estate industry, judging by fourth-quarter results from two of the largest publicly traded property landlords, Equity Office Properties Trust and Equity Residential, which are bellwethers for the U.S. office and apartment markets.

Offices and apartments have been the hardest hit real-estate sectors in the economic downturn, hurt by anemic demand, falling rents and rising vacancies.

Equity Office, based in Chicago, said fourth-quarter net income rose 46% to $171.6 million, or 42 cents a share, compared with the year-earlier $117.9 million, or 28 cents. The year-earlier results had reflected a one-time charge of $124.2 million, or 27 cents a share.

Meanwhile, Equity Residential, also Chicago-based, said net income fell 16% to $118.5 million, or 35 cents a share, from $141.5 million, or 43 cents a share, in the year-earlier fourth quarter. Real-estate mogul Sam Zell is chairman of both real-estate investment trusts.

Equity Office said funds from operations, a commonly used measure of REIT performance that adds back depreciation, was $365.3 million, or 79 cents a share, compared with $252 million, or 53 cents a share, a year ago. The latest results were two cents above what a consensus of analysts expected, according to Thomson First Call. Revenue was roughly flat at $884.5 million, compared with $885.6 million.

Occupancies in Equity Office's portfolio, which includes 126 million square feet in 731 buildings, fell to 88.6% from 89.2% at the end of the third quarter. In addition, operating earnings also continued to slip, all of which reflects continued weakness in the national office market.

On the apartment side, Equity Residential's funds from operations fell to $182.1 million, or 59 cents a share -- in line with analysts' expectations as compiled by Thomson First Call -- compared with $206.3 million, or 66 cents a share, a year ago.

Revenue fell about 3% to $492.9 million from $505.7 million.

Equity Residential said so-called same-store revenue and net operating income for its portfolio -- 1,039 properties in 36 states comprising 223,591 units -- fell 4% and 8%, respectively, from the year-earlier quarter. Same-store occupancy fell to 92.5% from 94%. Hardest-hit markets included Atlanta, Denver, Minneapolis, northern New Jersey and the San Francisco Bay area. The company reported strength in the New England area excluding Boston, California's Inland Empire, which is east of Los Angeles, suburban Maryland and San Diego.

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