- The Washington Times - Monday, September 1, 2003

CarrAmerica Realty Corp. is holding steady in the sluggish office real estate environment by expanding property-management contracts and acquisitions in its stronger markets.

The D.C. office real estate investment trust (REIT) last week won a property-management and leasing contract for the Lincoln at Legacy, a two-building office property in Dallas. Terms were not disclosed.

CarrAmerica owns, develops and operates office properties in 12 markets nationwide. In Dallas, the company owns or manages 17 buildings.

The company also bought two acres in San Diego for an undisclosed amount last month, with plans to develop a 45,000-square-foot scientific research building.

President and Chief Operating Officer Philip L. Hawkins said the acquisition is part of a long-term strategy to expand the company’s portfolio in stronger real estate cities, such as the District and several in California.

“The realty market is fairly soft, but the District remains a bright spot,” Mr. Hawkins said. The company plans to sell an equal number of buildings in weaker markets to finance the expansion.

But several analysts are concerned about the sluggish demand for office space and slow job growth.

While CarrAmerica has succeeded in retaining a large portion of its current tenants, job recovery and meaningful growth for the office market will not come until at least 2004, said analyst Anthony Paolone with J.P. Morgan Chase.

“The valuation of the stock is pretty attractive, but we’re not pounding the table for office REITs right now,” he said, advising investors to hold their shares. Mr. Paolone does not own CarrAmerica stock, but J.P. Morgan has a banking relationship with the company.

Shares of CarrAmerica closed Friday on the New York Stock Exchange at $28.15, up 1.3 percent from $27.79 a week earlier. The stock has climbed 17 percent from $24.41 in the last six months. U.S. stock markets were closed yesterday in observance of Labor Day.

Steve Sakwa, a senior real estate analyst for Merrill Lynch & Co. Inc., added that office-vacancy rates nationwide will climb to 19.4 percent by the end of the year.

“It’s going to take many years to bring those numbers down,” he said, also urging investors to hold their stock.

Mr. Sakwa, who does not own any CarrAmerica shares, noted the company has performed well given the current market.

He forecasted funds from operations, a good indicator of REIT performance, to hit $3.26 per diluted share for 2003, but dip to $3.17 per share for 2004.

Funds from operations reached $3.31 per share for 2002. Diluted earnings per share represent the value of convertible warrants and stock options.

CarrAmerica’s profits dipped 17 percent in the second quarter ended June 30 to $16.8 million (24 cents per diluted share) from $20.2 million (21 cents) a year earlier.

Funds from operations jumped 24 percent to $49.7 million (86 cents) from $40 million (74 cents).

The company’s occupancy rates for the quarter fell to 88.9 percent from 93.6 percent a year earlier.

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