Brookfield Office FFO Rises on Income From Australian Towers

Brookfield Office Properties (BPO), lower Manhattan’s biggest office landlord, said first-quarter funds from operations rose 14 percent as the Australian properties it acquired last year contributed to income.

FFO attributable to common shareholders, which gauges a property company’s ability to generate cash, increased to $141 million, or 28 cents a share, from $124 million, or 25 cents, a year earlier, the New York-based company said today in a statement. Analysts projected FFO of 27 cents, according to the average of 13 estimates in a Bloomberg survey.

Brookfield, which owns buildings in U.S. and Canadian cities such as New York, Boston, Washington and Toronto, diversified last year by buying 19 Australian properties, mainly office towers in Sydney, Melbourne and Perth. The company had added earnings from that purchase and “record” leasing in the quarter, Chief Executive Officer Richard Clark said.

“We witnessed accelerated recovery in our primary markets,” Clark said in the statement.

The company’s net operating income from commercial operations climbed 26 percent from a year earlier to $215.6 million, including $33.7 million from the Australian buildings, according to a supplemental statement on Brookfield’s website. Same-property net operating income increased 5.4 percent to $159.2 million.

Total revenue jumped 27 percent to $380 million.

Office Company

The company last year said it would restructure itself as a “pure-play” global office company, acquiring the Australian buildings from its parent, Brookfield Asset Management Inc. of Toronto, and merging its residential operation with another Brookfield Asset unit.

Brookfield Office has completed the divestiture of its housing unit, the company said today. A rights offering to shareholders remains in progress.

Net operating income for the company’s U.S. properties rose 5.3 percent in the first quarter to $101.2 million. It climbed 14 percent to $64.7 million for its Canadian holdings.

Lower Manhattan Decline

For lower Manhattan properties, which account for about a quarter of Brookfield’s net operating income, that number declined almost 1 percent to $53.9 million. It may fall further because of the expiration of Goldman Sachs Group Inc.’s lease at 1 New York Plaza downtown, Karine MacIndoe, an analyst with BMO Capital Markets, said in a note to clients today.

Brookfield is facing a “giant” challenge from the 2013 expiration of Bank of America Corp.’s lease at the 8 million-square-foot (743,000-square-meter) World Financial Center in lower Manhattan, John Stewart, an analyst at Green Street Advisors Inc., wrote in a May 3 report. The bank’s downtown leases generate almost 10 percent of Brookfield’s net operating income, he said. He has a “hold” rating on the stock.

Bank of America, based in Charlotte, North Carolina, inherited the 4.6 million square feet of leases at the World Financial Center with its purchase of Merrill Lynch & Co. in 2009. Investor uncertainty over the status of the leases has weighed on Brookfield’s shares, wrote Stewart.

“The market’s concern is justified, but Brookfield’s track record suggests it should be up to the task,” he said.

Oppenheimer Lease

OppenheimerFunds Inc., an investment-management firm, leased 235,342 square feet at 2 World Financial Center in February, directly from Brookfield. OppenheimerFunds had subleased that space from Bank of America, one of several tenants that rent 1.9 million square feet from the bank.

The company also leased 173,000 square feet to Commerzbank AG at 2 World Financial, it said in today’s statement.

Vacancy rates for Class A office space in lower Manhattan fell to 10.7 percent last month, the lowest since June, Cassidy Turley said on May 3. The area may have more demand after recent lease agreements by Conde Nast Publications Inc. at 1 World Trade Center, which is under construction, and law firm WilmerHale at 7 World Trade Center, Stewart said.

Brookfield fell 9 cents to $19.39 in New York Stock Exchange composite trading. The stock is up 11 percent this year, compared with a 9.5 percent increase in the Dow Jones U.S. Real Estate Index.

To contact the reporter on this story: David M. Levitt in New York at dlevitt@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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