Equity Office Properties' Profit Drops

The company cites lower occupancy levels and lower lease-termination fees.
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Equity Office Properties

(EOP)

reported a drop in second-quarter profit late Monday, as lower occupancy levels and lower lease-termination fees hurt results.

In the quarter ended June 30, the company earned $149.9 million, or 37 cents a share, compared with $166.5 million, or 40 cents a share, in the previous-year quarter. Gains on asset sales during the quarter were $44.4 million, the company said.

Funds from operations were $310.2 million, or 69 cents a share, compared with last year's $366.3 million, or 78 cents a share. Funds from operations exclude one-time gains and losses but add back depreciation costs.

"Our leasing activity year-to-date has been strong, but we continue to face higher-than-expected early lease terminations," said Richard D. Kincaid, chief executive. "Our occupancy level this quarter was stable with the prior quarter for the first time in 12 quarters, and our top 20 markets had positive net absorption of approximately 5.4 million square feet. These trends lead us to believe that the office markets are starting to stabilize."

Revenue was $811 million, down from last year's $861.9 million. Equity Office cited a decline in occupancy between periods and lower rental rates on new leases signed. Lease termination fees, including those recognized as income from joint ventures, were $11.5 million during the quarter, compared with $18.2 million during last year's quarter.

Additionally, the real estate investment trust guided 2003 earnings at $1.27 to $1.47 a share, but said it expects earnings in the lower half of that range. Funds from operations are seen being $2.80 to $3 a share. Analysts expect $2.81 a share; the company earned $3.21 a share a year ago.

Recently, shares of the company were at $27.56, or breakeven, on the

New York Stock Exchange

.

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