Real estate firms continue turning in strong earnings, with powerhouses Grubb & Ellis Company (NYSE: GBE) and American Industrial Properties REIT (NYSE: IND) showing substantial profit boosts last quarter.

Grubb & Ellis reported a 19 percent increase in total revenue for the quarter ended Dec. 31, 1999, when compared to the same quarter the previous year. Revenue went from $98.6 million for the quarter in 1998 to $117.3 million for the quarter in 1999.

Earnings before interest, taxes, depreciation and amortization (EBITDA) showed a respectable increase for the second quarter of fiscal 2000, to $12.9 million from $11.5 million in same period a year ago. Margins showed a slight dip, however, from 11.6 percent last year to 11 percent, but net income rose from 25 cents per share to 27 cents per share.

“We are very pleased with the revenue growth in each of our businesses this quarter. Our fears of a slowdown in transaction velocity as a result of Y2K did not materialize,” said Neil Young, Grubb & Ellis chairman and CEO. “In fact, advisory services posted its strongest December in company history.”

Young set the stage for better results in the future, saying that the company’s results were negatively impacted by a $6.1 million increase in operating costs and expenses primarily due to the incremental operating and integration costs associated with the acquisition of Landauer, which was completed in the first quarter. The company expects Landauer to contribute to EBITDA during the second half of the fiscal year.

Other factors contributing to the increase included start-up costs associated with a large management services outsourcing assignment and increases in depreciation and amortization due to the completion of the company’s new information systems and the amortization related to acquisition goodwill.

“With these expenditures behind us and a strong pipeline of business from our growing list of strategic corporate and institutional clients, our year over year outlook for the second half of the fiscal 2000 is extremely positive,” Young said.

Theoretically, this makes the stock an excellent buy at around $5 3/8, or about a 12.35 price-to-earnings ratio. Stock price is only $1 off its 52-week low, yet far beneath the high of $7 ½ experienced more than a year ago. If the company has, in fact, incurred recent expenses to prepare for future growth, the stock price may in fact receive the positive bump it deserves with future positive earnings reports.

In the industrial arena, American Industrial Properties REIT announced that funds from operations (FFO) for the quarter ended Dec. 31, were 36 cents per share, up significantly from 30 cents per share for the fourth quarter a year before.

For the year, FFO was up an impressive 30 cents per share over 1998, to $1.40 from $1.10.

Now for the not-so-good, not-so-bad news. The company experienced a loss of 18 cents for the quarter. This was, however, substantially improved over the loss of 91 cents for fourth-quarter 1998.

Most impressive is the turnaround in earnings for the year. For 1999, AIP managed to make 71 cents per share, compared to a loss of 82 cents per share in 1998.

“When compared to the prior year, we are pleased to report FFO per share growth of 20 percent on a quarterly basis and 27 percent on an annual basis during a challenging environment for all real estate investment trusts,” said Charles Wolcott, president and CEO of AIP. “We believe this strong performance is reflective of the superior investment returns available in the fragmented light industrial, office flex market. In particular, AIP has succeeded by focusing on flex properties in markets that appeal to rapidly growing companies in the technology sector.”

Unfortunately for investors, the market is being none-too-kind. Share price, which bottomed out slightly above $9 last spring, now is in the $10 range after a leap to near 15 in August. Again, it’s enough to make bold investors sit up and take notice.

Published: February 15, 2000

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