Mission West Again Trims Estimate

Mission West Properties Inc., which owns commercial properties in California’s Silicon Valley, cut its earnings estimate for 2002 for the second time in three months because of reduced demand for office space.

The real estate investment trust expects to earn funds from operations of $1.22 a share in 2002, Carl Berg, chairman and chief executive, said on a conference call with analysts and investors. Wall Street was expecting earnings of $1.29, according to a survey of six analysts by Thomson Financial/First Call.

Mission West, whose motto is “We build the buildings for companies that built the Internet,” said in July that earnings for 2001 and 2002 would fall short of estimates because of a drop in tenant demand. The company said it expected to earn $1.31 a share in 2002, below analysts’ estimates of $1.41.

“Silicon Valley is a volatile area,” Berg said. “We knew that and we expect it to be that way. We believe we’ll be one of the best performing REITs in the country in good and bad times. This is one of the worst times.”

Mission West’s shares closed unchanged at $11 on the American Stock Exchange and are down 21% for the year. The company owns 96 properties with 6.7 million square feet, mostly in Silicon Valley, up from 6 million a year earlier.

Separately, the company said third-quarter funds from operations rose 30% to $30.5 million, or 30 cents a share, from $23.2 million, or 23 cents, a year earlier. Revenue increased to $33.2 million from $26.8 million.

Funds from operations, a measure of cash flow, is generally defined as net income before depreciation and any extraordinary items. This is considered the best measure of performance of a REIT because it’s used to calculate dividend payments.

Silicon Valley’s vacancy rate rose to about 15% in the third quarter, the highest rate since 1993, as Internet and technology-related companies cut back or went out of business. Rents fell to $2.59 a square foot a month, off 54% from their fourth-quarter peak.

Mission West reduced its outlook again because it might take as long as a year to rent 290,000 square feet of space with leases expiring next year, Berg said.