15 January 2002
The US central business district vacancy rate hit 12% at the end of 2001, up from 7.1% a year earlier and from 10.6% at the end of the September quarter, according to Cushman & Wakefield. The firm attributed the highest vacancy level in four years to corporate cutbacks and the 11 September terrorist attacks. Cushman & Wakefield’s third-quarter research showed great potential for more empty space — leasing for the first nine months of the year, at just under 4 million mÂ², was marginally ahead of the total of completed construction and office space under construction. Outside the cbd, the September vacancy rate was far bigger — 15.3%, with a big volume of buildings to be completed. However, non-cbd leasing, at just under 11 million mÂ², was again slightly ahead of the total of construction completed (4.48 million mÂ²) and offices under construction (6.3 million mÂ²).
Singapore’s Housing & Development Board said on 9 January it would stop building new flats in new towns, plans to dispose of 17,500 unsold flats and will offer new flats in older estates to the public, the first time it has stepped outside its sales system to do that. Demand for new flats fell from 22,000 in June to 11,000 at the end of 2001.
Massachusetts-based Senior Housing Properties Trust completed its $US600 million acquisition of 31 senior living communities from Crestline Capital Corp on 11 January. Simultaneously, these 31 properties were leased to Five Star Quality Care Inc, Senior’s former subsidiary which was spun out to Senior shareholders on 31 December 31 to operate as a separate company. All are managed by a Marriott International Inc subsidiary on long-term contracts. The minimum rent is $US63 million/year, with revenue-based rises starting in 2003. The properties’ 7487 living units are 90% occupied. This deal takes Senior’s holdings to 112 properties containing 18,045 units in 28 states.
Crestline Capital Corp, of Maryland, (see above) said it would concentrate on the lodging business. In the past year it has also sold $US350 million of inns and leased hotels, and now has $US500 million in cash — $US30/share. Chief financial officer James Francis said 2002 would be a rough year for the lodging industry and he expected the company to only break even before interest income. Subsidiary Crestline Hotels & Resorts manages and leases 36 hotels, resorts and conference & convention centres with nearly 7000 rooms in 13 states and Washington.
KB Home of Los Angeles, one of the biggest residential builders in the US & France, announced record fourth-quarter & November year results. Net income for the quarter rose 20.6% to $US88.5 million, but only 6% on an earnings/share basis (after a substantial equity increase through a conversion), from $US2 to $US2.03, on revenue up 16.3% to $US1.4 billion. Construction operating income rose 11.2% to $US135.1 million, the gross housing margin rose 0.2 points to 20.8%. Average selling price rose 5.2% to $US178,800. For the full year, KB produced 24,868 homes, 2000 more than its previous best year (the year to November 2000), for revenue up 16.3% to $US4.57 billion and net earnings up 25.8% to $US214.2 million. The company has increased house sales at a 19% compound annual rate over five years. It cut its debt:total capital ratio 4% to 49.9% and still ended the year with $US281 million in cash & $US564 million available credit. Average return on equity has exceeded 20% for the past five years. Year-end forward orders exceeded 11,000 for the first time.
M/I Schottenstein Homes Inc, a 25-year-old Ohio-based company, established several records — it delivered 1303 homes in the fourth quarter, up 8%, and 4227 for the year, up 4%, both records. Its year-end order book of 2331 homes worth $US559 million is at an annual sale price of $US240,000. The company will report its 2001 results on Thursday 31 January.
New Jersey-based residential builder Hovnanian Enterprises Inc completed the $US176.5 million acquisition of The Forecast Group LP, a privately held Californian company, on 10 January, taking Hovnanian to eighth-largest US homebuilder. It expects to build more than 8500 houses for $US2.1 billion this year, a 20% increase. Hovnanian now controls more than 45,000 lots, more than 70% controlled under option contracts which reduce the company’s risk and allow it to maintain balance-sheet flexibility & liquidity. President & chief executive Ara Hovnanian said the transaction price represented 3.1 times expected ebitda for Forecast over the next 12 months and the acquisition should be accretive to earnings immediately. He expected earnings/share to rise 30% to $US3, including a US50c gain from Forecast. Hovnanian operates in 11 states, has eight brands and says it’s “one of the nation’s largest sellers of homes to Active Adults, under the name of K. Hovnanian’s Four Seasons communities.”
Lehman Brothers analyst David Shulman predicted 7% returns for US real estate investment trusts in 2002, with no bounce for another two years. Lehman predictions for the overall market are for returns of 15-20% in 2002, making reits a boring sideshow. Mr Shulman said most reits were trading at or near net asset value, making stock picks based on valuation harder. He estimated the sector was trading at about 9.4 times 2002 funds from operations, making it expensive on the prospect of 4% growth. And he said much of the growth would come from refinancing expensive debt, not from higher rents or better occupancy, developments or acquisitions. Among the reits he downgraded, TrizecHahn Corp went from strong buy to buy. But he continued to rate Vornado Realty Trust a strong buy for its 12% projected growth, likely dividend rise and its position as the leading Manhattan office owner.
Lehman Brothers announced on 10 January it had formed a $US1.6 billion real estate merchant banking fund, Lehman Brothers Real Estate Partners, the latest in a series of private equity funds set up over four years as part of Lehman’s focus on alternative asset management. It will make private equity investments in properties, operating companies & service businesses ancillary to the real estate industry, primarily in North America and Western & Central Europe. About $US400 million has been placed so far in 15 investments.
Jones Lang LaSalle said on 9 January that Microsoft Corp had selected it as preferred worldwide provider of real estate transaction & project management services. The new assignment excludes Microsoft’s corporate headquarters in the greater Seattle area, but covers 740,000mÂ² everywhere else in the world. “We selected Jones Lang LaSalle because they were the only service provider that offered consistent integrated service delivery and a sophisticated information technology system to streamline Microsoft’s real estate transaction & project management services worldwide,” said James Ableson, manager of US & international real estate for Microsoft. JLL international director Thomas Wilkinson has become global account manager for Microsoft.
Liberty Property Trust has sold its 13 office & industrial properties in Charleston, South Carolina, to Jupiter Realty for $74 million. Charleston was the smallest metropolitan area where Liberty operated and the 70,000mÂ² portfolio made it the largest office & industrial landlord. The trust said the market was too small to support its full-service style and growth opportunities were insignificant.