Brookfield Fourth-Quarter Profit Drops After Residential Unit Is Spun Off

Brookfield Office Properties Inc. (BPO), owner of lower Manhattan’s World Financial Center, said fourth- quarter funds from operations fell 34 percent after the company spun off its profitable residential business.

FFO attributable to common shareholders, which gauges a real estate company’s ability to generate cash, dropped to $134 million, or 26 cents a share, from $204 million, or 40 cents, a year earlier, New York-based Brookfield said today in a statement. The result matches the average estimate of 15 analysts in a Bloomberg survey. The company projected full-year diluted FFO of $1.07 to $1.12 a share, compared with an average analyst estimate of $1.12.

Brookfield sharpened its focus on office properties last year when it merged its residential land operation, which mainly built homes in oil-rich western Canada, with another unit of its parent, Brookfield Asset Management Inc. (BAM/A) Brookfield Office generated no income from residential operations in the fourth quarter, compared with $48 million a year earlier.

Brookfield faces expiring leases in its skyscrapers in lower Manhattan, where it’s the biggest office landlord.

“Significant lease rollover in 2013, much of it in downtown Manhattan, appears to still be more of a risk than a positive,” Ross Smotrich, an analyst with Barclays Capital Inc. in New York, wrote in a Jan. 26 report. “Brookfield’s earnings could be hit relatively hard if leasing demand wanes in lower Manhattan in the near term.”

Manhattan Vacancies

Bank of America Corp. said it will leave behind more than 3 million square feet (279,000 square meters) of World Financial Center offices when the leases expire next year. The bank agreed to keep 767,000 square feet of the space it inherited with its 2009 acquisition of Merrill Lynch & Co.

Brookfield has 590,000 square feet of empty offices at 1 New York Plaza that had been rented by Goldman Sachs Group Inc. (GS)

Lower Manhattan, which had an 11.6 percent office availability rate at the end of last year, probably will have a “spike” in unleased space as such financial firms as Bank of America, Nomura Holdings Inc. and Depository Trust & Clearing Corp. consolidate offices, the brokerage firm Studley Inc. said in a report last month.

Revenue was $527 million, a 33 percent jump from a year earlier. Net operating income from commercial properties rose 50 percent to $305 million, as the company’s U.S. portfolio contribution almost doubled to $186 million. Net income attributable to shareholders fell to $338 million from $971 million.

Leasing Record

The company signed a record 10.1 million square feet of leases in 2011, Chief Executive Officer Ric Clark said in the statement. That’s 22 percent more than the its previous high in 2007. About 2.7 million square feet was rented in the fourth quarter at an average net rent of $29.50 a square foot, up 4 percent over the expiring rents on the same space.

Brookfield’s Australian properties, which it acquired in September of 2010, contributed $40 million to net operating income from commercial business, up from $34 million a year earlier.

Earnings were released before the start of regular U.S. trading. Brookfield fell 0.5 percent to $17.81 yesterday in New York. The shares have gained 2.3 percent in the last 12 months, compared with a 4.2 percent increase in the 83-member Dow Jones U.S. Real Estate Index. (DJUSRE)

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: Daniel Taub at dtaub@bloomberg.net

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