This article is from the Australian Property Journal archive
RECKSON New York Property Trust has reported a slower pace in leasing activity as a result of the credit market crisis and overall uncertainty in the United States.
At the beginning of the year, the trust had forecast 500,000 sq ft of space will be leased in 2007.
And whilst in the first half of 2007, the trust achieved 357,434 sq ft of leasing, including 112,054 sq ft of early renewals, whichreflected an active market where tenants were seeking to lock-in rents in a rising rental rate environment.
The credit market crisis and overall uncertainty in the US economy, however, has caused the pace of leasing in the second half of 2007 to slow, with leasing transactions taking longer to execute.
To date in the second half of the year, the trust has signed leases for 113,078 sq ft, which is a reduced pace from the first half activity and reflects the impact of the market environment.
The trust’s chairman and chief executive Scott Rechler said whilst the near term results have been negatively impacted by the loss of a large tenant in the residential mortgage business and overall slow down in the leasing environment, he believes there is significant embedded value in the RNY portfolio.
“Unfortunately our portfolio is not currently of a scale where it can absorb the short-term disruptions to the leasing cycle that we have recently experienced.
“Management has a significant investment in the portfolio alongside unitholders and will continue to evaluate the best alternatives to realise the portfolio’s embedded value,” he added.
The credit crisis in the US has also dissuaded RNY from internalise the management of the trust.
Earlier this year, the trust was looking at opportunities to internalise of the management of the trust as well as the buying of RexCorp’s broader real estate business, including its property and asset management businesses, its construction and development businesses, and the real estate interests owned by RexCorp outside of its interest in the trust.
Rechler said yesterday the effects of the turmoil in the US financial markets that began in late August disrupted this process.
“Management and its advisers attempted to restructure the transaction but ultimately it was determined that the transaction was not viable at this time.
“The trust will write-off the costs incurred pursuing this effort, totalling approximately $2.5 million, although there may be some future benefit to these costs if the internalisation is reconsidered in the future,” he continued.
Meanwhile, Rechler said the effect of the disruption in the current market environment and its impact to the RNY portfolio has caused management to take a more conservative view in forecasting the trust’s earnings.
He said vacancies and sub-prime tenant issues arising in the second half of this year will impact 2007 and 2008 results.
But the reforecasted leasing will not have a material financial impact until into 2008.
As a result, the trust is currently forecasting EPU for the second half of 2007 of approximately 3.4 cents per unit, bringing the full year 2007 EPU estimate to approximately 7.2 cpu, excluding the impact of writing-off the internalisation costs described above, which will be funded through working capital.
The expected distribution for the second half of 2007 is 3.4 cpu, resulting in total 2007 distributions of approximately 7.7 cpu, including approximately 1.0 cpu distributed from unitholder funds during the year. For 2008, the Trust is forecasting EPU of approximately 7.4 cpu. Adjusting for non-cash earnings items, DPU for 2008 is estimated to be approximately 7.1 cpu.
Australian Property Journal
