Jones Lang LaSalle
SWING TIME FOR EOP
Peter Slatin
Ending months – years, for some - of speculation and bowing to industry pressure, Equity Office Properties announced a 34% dividend cut and $500 million stock buyback today. The dividend cut will be effective with its first quarterly payment for 2006. EOP will pay out $1.32 a year, down from $2.00. Even though the move was long anticipated, it sent the stock of the country's largest office-building owner sliding. The stock had fallen as much as 5.25% by early afternoon, but had started to climb back.
The cut means that EOP Chairman and founder Sam Zell will take a pay cut of $9.4 million from what has been EOP's largest stakeholder's annual payout of $27.8 million.
Zell long resisted the dividend cut, and has asserted that "dividends drive the company's stock price," says a real estate finance professional who has clashed with Zell over the issue in the past. "But by paying out more than e was earning, EOP was retarding its future growth."
EOP has not been able to cover its dividend through cash flow since 2002, and has been selling off assets to keep shareholders on board. To date this year, the company has reported sales of 19 million square fee of office space – more than 10% of its portfolio – for $2.6 billion.
In addition to the dividend cut, EOP announced a $500 million stock buyback to support the share price.
Even the aggressive sales at the office market's go-go capitalization rates didn't deter buy-side analysts Green Street Advisors from lowering their estimate of EOP's earnings by 2% earlier this fall.
According to research from Bank of America Securities analyst Ross Nussbaum – who six weeks ago predicted a dividend cut, but of only 20% to 25% - EOP's announcement shouldn't negatively affect the rest of the REIT office sector. (Nussbaum is project flat returns for REITs overall in 2006.) That' s because analysts have long waited for this news, and rumors of an impending cut were thick at a recent industry conference. And the extravagant $2.00 dividend was set at a time when the office market was at its zenith, with rents in San Francisco hitting $125 a square foot. Now, even though it is selling off properties in Houston and Dallas, for example, EOP has been making strategic, if expensive, buys in markets it considers high growth, such as Austin and Manhattan.
There's hope for long-term EOP holders, though, says Nussbaum: if the company stays the course, it should be able to cover its dividend through cash flow by 2007.
But EOP is still a heavy hitter: on the same day as the announcement, friends in the real estate industry received their holiday gift from the office giant: a Louisville Slugger baseball bat, engraved with the recipient's name and emblazoned with the company name and the legend: "2005 Investments: $4 billion and Counting."
SWING TIME FOR EOP
Peter Slatin
Ending months – years, for some - of speculation and bowing to industry pressure, Equity Office Properties announced a 34% dividend cut and $500 million stock buyback today. The dividend cut will be effective with its first quarterly payment for 2006. EOP will pay out $1.32 a year, down from $2.00. Even though the move was long anticipated, it sent the stock of the country's largest office-building owner sliding. The stock had fallen as much as 5.25% by early afternoon, but had started to climb back.
The cut means that EOP Chairman and founder Sam Zell will take a pay cut of $9.4 million from what has been EOP's largest stakeholder's annual payout of $27.8 million.
Zell long resisted the dividend cut, and has asserted that "dividends drive the company's stock price," says a real estate finance professional who has clashed with Zell over the issue in the past. "But by paying out more than e was earning, EOP was retarding its future growth."
EOP has not been able to cover its dividend through cash flow since 2002, and has been selling off assets to keep shareholders on board. To date this year, the company has reported sales of 19 million square fee of office space – more than 10% of its portfolio – for $2.6 billion.
In addition to the dividend cut, EOP announced a $500 million stock buyback to support the share price.
Even the aggressive sales at the office market's go-go capitalization rates didn't deter buy-side analysts Green Street Advisors from lowering their estimate of EOP's earnings by 2% earlier this fall.
According to research from Bank of America Securities analyst Ross Nussbaum – who six weeks ago predicted a dividend cut, but of only 20% to 25% - EOP's announcement shouldn't negatively affect the rest of the REIT office sector. (Nussbaum is project flat returns for REITs overall in 2006.) That' s because analysts have long waited for this news, and rumors of an impending cut were thick at a recent industry conference. And the extravagant $2.00 dividend was set at a time when the office market was at its zenith, with rents in San Francisco hitting $125 a square foot. Now, even though it is selling off properties in Houston and Dallas, for example, EOP has been making strategic, if expensive, buys in markets it considers high growth, such as Austin and Manhattan.
There's hope for long-term EOP holders, though, says Nussbaum: if the company stays the course, it should be able to cover its dividend through cash flow by 2007.
But EOP is still a heavy hitter: on the same day as the announcement, friends in the real estate industry received their holiday gift from the office giant: a Louisville Slugger baseball bat, engraved with the recipient's name and emblazoned with the company name and the legend: "2005 Investments: $4 billion and Counting."
posted by Jones Lang LaSalle NJ News Blog at 11:07 AM
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