Two local real estate companies are reporting widely divergent first quarter financial results.
Vista-based Pan Pacific Retail Properties Inc. and Burnham Pacific Properties Inc. of San Diego both reported first quarter earnings earlier this month.
While both real estate investment trusts specialize in owning strip shopping centers in the Western United States anchored by a grocery or drug store, the similarity ends there with a divergence in their financial results.
Pan Pacific recorded a 7.1 percent increase in funds from operation (FFO) per share to 60 cents since first quarter 1999’s 56 cents. Burnham Pacific suffered a 26 percent drop in FFO from 27 cents per share to 20 cents per share.
The amount of FFO is the standard gauge of a real estate investment trust’s income flow adopted by the National Association of Real Estate Investment Trusts. The measure includes rent received but ignores depreciation and interest charges, among other items.
In April, Burnham announced it was looking for a buyer for the entire company with the help of brokerage giant Goldman, Sachs & Co. Inc.
Calls to Burnham’s management were not returned this past week because they were at a convention in Las Vegas, a secretary said.
In recent months, Pan Pacific acquired another shopping center, Wiegand Plaza I. It’s in Encinitas and was purchased for approximately $11.8 million.
Expansion
Pan Pacific in the first quarter also bought a share of Eversave.com, a Web hosting company, to provide Web sites for Pan Pacific tenants and help boost their sales. Most of the company’s tenants pay a percentage of their gross revenues as rent in addition to a fixed monthly amount.
Burnham announced early this month it had closed the sale of a Tacoma, Wash., shopping center for about $3.25 million and would gain about $450,000 from the sale.
Both REIT stocks had been declining since November 1997 when the U.S. Federal Reserve warned banks to curtail loans to their industry. Burnham’s stock was trading at around $15 a share and slid to about $6.40 May 24, while Pan Pacific’s stock fell from $22 a share in 1997 down to $15 in November 1999. On May 24, it had climbed to more than $19.50.
“Pan Pacific’s financial performance continues to reflect the benefits of our operational strategy,” said Stuart Tanz, president and CEO. “Our exceptional 98 percent occupancy rate and double-digit rent growth are directly attributable to our strong franchise and the positive economic and demographic trends in our Western U.S. markets.”
Pan Pacific was able to increase its quarterly dividend in the first quarter to 42 cents per share. That’s a 5 percent increase over fourth quarter 1999, Tanz said.
Burnham’s decline in FFO was attributed in a company news release to the sale of some of its properties. A decrease in lease cancellation fees and an increase in borrowing costs also contributed to the drop, the company said.
Burnham’s rental rates on lease renewals rose about 7 percent over previous lease rates. An estimated 91.4 percent of its retail space was occupied.
David Allen, an analyst with Granite Financial Group in San Diego, who watches local real estate companies, sees Pan Pacific as a good purchase right now for investors looking for both a dividend and capital appreciation. His firm stopped coverage of Burnham three years ago.
“Investors haven’t been willing to recognize the positives of REITs and have been fascinated with technology stocks,” Allen said. “I’m seeing much more interest in REITs the past three or four months, now that technology companies are hurting.”
REITs like Pan Pacific are somewhat interest-rate sensitive because they must borrow to buy real estate. That makes for some uncertainty now for prospective stock buyers, Allen said. However, his firm still recommends its clients buy Pan Pacific.
“Pan Pacific knows about the demographics of a region when it buys there, so they don’t buy properties that look like a good deal, but aren’t,” Allen said.
