Real Estate Investment Management

We weathered the economic downturn thanks to a stable base of assets and good management.

By every measure, 2009 was one of the most ­challenging years the Real Estate Investment ­Management (REIM) division has faced. Yet REIM, which manages the Company’s portfolio of ­high-quality income-producing real estate assets in 16 states including Hawai’i and Washington, D.C., has weathered the economic downturn better than most other national real estate enterprises, thanks to a ­combination of a stable base of assets and good ­management.

Overall, our portfolio’s occupancy rate was 91.5 percent, exceeding national averages. Taken ­individually, our industrial, office and retail properties also exceeded national sector averages. These ­exceptionally successful outcomes were supported by other factors. For example, while leasing activity was below targeted objectives, we nevertheless secured new tenancies or lease extensions of desirable ­tenants. We also entered into short-term leases when feasible, to generate income. At the same time, ­tenant failures and defaults, while on the rise, were lower than feared. Some defaults were forestalled through ­proactive negotiations and work outs with tenants.

On the management side of the equation, REIM’s cost containment strategies led to meaningful reduction in operating expenses.

A Foundation of Stable Assets
The foundation of the Company’s portfolio is stable, low-risk assets that are 100 percent occupied by strong credit tenants. Four properties are excellent ­examples:

• Two Washingtonian — an office complex in Gaithersburg, Montgomery County, Maryland, which is a part of the Washington Metropolitan Area.
• SouthPoint — an industrial distribution building located in the SouthPoint Industrial Park in Forest Park, Georgia.
• Ward Parkway — an office building in Kansas City, Missouri, currently the largest ­revenue-producing asset in the Company’s portfolio.
• 600 N. Field Drive — an office building at ­Conway Park in Lake Forest, Illinois, about 30 miles northwest of Chicago.

We also posted excellent occupancy rates of more than 95 percent at our two Washington, D.C. ­properties, 1667 K Street NW and 1331 F Street NW. ­According to numerous real estate economists, the ­District of Columbia is the nation’s best office market.

2009 Leases
2009 offered several opportunities to renew existing leases and secure new leases with stable tenants.

Georgia

• The Shawnee Ridge — this industrial distribution building unexpectedly lost its two tenants due to business failure. We replaced half the building with credit worthy Trader Joe’s. The complex is ­located in the I-85 Northwest submarket, the largest industrial submarket in metro Atlanta.
• Suwanee Creek Distribution Center — also in the I-85 Northwest submarket, we renewed over 200,000-square-feet of its leasable space.

Virginia

• 4100 N. Fairfax Drive — an office building in ­Arlington, where we stabilized long-term tenancy with early renewal and extension of Cambridge Associates. The building is in one of the most ­desirable office submarkets in metropolitan Washington, D.C.
• The 2051 Jamieson Avenue — we completed early renewal and extension of the federal government’s GSA lease with the Department of Patent and Trademark Office. The office building is in Alexandria, just six miles from Washington, D.C.

Illinois

• ArborLake Centre — we re-tenanted this office building in Deerfield with a diversified tenant base after losing the anchor tenant in 2007. The ­occupancy rate is now more than 90 percent.
• Suwanee High Grove Lane — the lease for this ­distribution building in Naperville, formerly with Daimler Chrysler, was renegotiated and extended with Chrysler’s successor entity when it emerged from bankruptcy.

California

• Vintage Oaks — we negotiated an expansion and extension of Sports Authority’s lease at this shopping center in Novato.

Hawai‘i

• Campbell Square — we completed new and ­renewed leases for 35,000 square feet of this ­office complex in Kapolei.

New Jersey

• 2200 Fletcher Avenue  — we completed new and renewed leases for 30,000 square feet at this office building located in Ft. Lee, a suburban ­market across from Manhattan near the George Washington bridge.

Short-term tenancies were negotiated at several ­assets throughout the portfolio. One notable example is a temporary lease with S&K Pictures, a film production company at Atlantic Distribution Center in Atlanta, Georgia.

Dispositions
As a defensive move, we disposed of several ­underperforming assets for cash in 2009. This ­strategy allowed us to build our cash reserves and minimize the impact on income, as these assets were not ­generating strong income. We disposed of Tradeport I and II in Atlanta, Georgia for $9.15 million in May, followed by Edgewater 301 and 401 in Wakefield, Massachusetts in October for $37.5 million. Also in October, we disposed of our Palehua conservation and agricultural lands and telecom sites on O‘ahu, Hawai‘i for $19 million.