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Brookfield Beats Estimates

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Brookfield Office Properties Inc. , a real estate investment trust (REIT), reported second quarter 2012 FFO (funds from operations) of 30 cents per share, beating the Zacks Consensus Estimate by 3 cents. However, the FFO was in line with the year-ago number. Total FFO stood at $171.0 million compared with $166.0 million in the year-ago quarter.

Quarter Highlights

Total revenue during the quarter was $569.0 million, up 46.7% from $388.0 million in the year-ago period. Moreover, revenue substantially surpassed the Zacks Consensus Estimate of $554.0 million.  

Same-store occupancy marginally dipped to 93.2% from 93.6% in the prior-year quarter. However, overall occupancy rose to 93.4% from 93.3% a year ago. The overall occupancy growth was attributable to rise in occupancy in the company’s Canadian portfolio, partially offset by a dip in occupancy in the company’s Australian portfolio.
Brookfield’s commercial property net operating income stood at $342.0 million, up 57.6% from $217.0 million, mainly due to the impact of the property acquisitions and the consolidation of the U.S. Office Fund.

During the quarter, the company leased 2.6 million square feet of space at an average net rent of $28.59 per square foot. It represents a 34% increase over expiring net rents during the reported quarter.

Acquisitions & Dispositions

In continuation of its ongoing acquisition activity, Brookfield has acquired a portfolio of office buildings and development sites in London. The portfolio, spanning approximately 2.3 million square feet, was acquired for $871.0 million. Brookfield has also debuted in the Seattle market with the acquisition of Metropolitan Park East and West office towers. The 856,000-square-foot Class A office campus has been acquired for $210.0 million.

In addition, the company also acquired 799 9th Street, NW located in Washington, DC. The 265,000-square-foot property has been acquired for $106.0 million.

Financing Activity

During the second quarter, Brookfield financed a loan to the tune of $1.2 billion for a property in North America, bearing an average rate of 4.0% and having an average term of 4.6 years. The company generated net proceeds of $600 million and saved 135-basis points over the existing debt through this deal.

In addition, the company also refinanced a loan worth $140 million for a property in Australia, bearing an average rate of 7% and average term of 3.4 years. Consequently, the company saved 105-basis points over the existing debt.


Brookfield has a healthy balance sheet with very manageable near-term debt maturities and plenty of cash. At the end of the second quarter 2012, the company had cash and cash equivalents of $281.0 million and total outstanding debt of $12,147 million.


Brookfield declared a quarterly dividend of 14 cents per share, to be paid on September 28, 2012 to common shareholders of record as of September 1, 2012.

Our Viewpoint

Based on Brookfield’s significant leasing activity, ongoing acquisition activity, strong balance sheet and liquidity position, we expect analysts to up their estimates in the coming days. Currently, the Zacks Consensus Estimate for 2012 and 2013 are pegged at $1.11 and $1.16, respectively.

Brookfield carries a Zacks #2 Rank, implying a short-term Buy rating. However, we reiterate our long-term Neutral recommendation on the stock. One of its competitors – Vornado Realty Trust (VNO - Free Report) – carries a Zacks #3 Rank (short-term Hold rating).

Note: FFO, a widely accepted and reported measure of REIT’s performance, is derived by adding depreciation, amortization and other non-cash expenses to net income.

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