Brookfield Office Properties Reports Fourth Quarter and Full-Year 2013 Results

Brookfield Office Properties Inc. announced its financial results for the quarter and year ended December 31, 2013. The financial results are based on International Financial Reporting Standards ("IFRS") unless otherwise noted.
  Three Months Ended Twelve Months Ended
(US Millions, except per share amounts) 12/31/13 12/31/12 12/31/13 12/31/12
Funds from operations (1) $ 134 $ 161 $ 652 $ 650
Net income attributable to common shareholders 152 342 1,091 1,287
Commercial property net operating income (1) 327 346 1,364 1,345
Fair value (losses) gains (6 ) 238 562 1,004
   
Per common share - diluted  
  Net income $ 0.25 $ 0.59 $ 1.89 $ 2.25
  Funds from operations (1) 0.22 0.28 1.12 1.14
   
(1)Non-IFRS measure. See definition under "Basis of Presentation"
   
Funds from operations ("FFO") for the year ended December 31, 2013 increased to $652 million or $1.12 per diluted common share, from $650 million or $1.14 per diluted common share in 2012. In the current quarter, FFO, including transaction costs of $8 million related to the acquisition of MPG Office Trust, Inc., was $134 million or $0.22 per diluted common share, compared with $161 million or $0.28 per diluted common share in the fourth quarter of 2012.
Net income attributable to common shareholders for the year ended December 31, 2013 was $1.1 billion or $1.89 per diluted common share, compared with $1.3 billion or $2.25 per diluted common share in 2012. Net income attributable to common shareholders in the fourth quarter of 2013 was $152 million or $0.25 per diluted common share, compared with $342 million or $0.59 per diluted common share in the fourth quarter of 2012. The reduction in net income for the year was due primarily to a decrease in fair value gains on the company's investment properties, which amounted to $562 million in 2013 compared with $1 billion in 2012.
Commercial property net operating income for the year ended December 31, 2013 increased to $1.4 billion, compared with $1.3 billion in 2012. Commercial property net operating income for the fourth quarter of 2013 decreased to $327 million, compared with $346 million in the fourth quarter of 2012, largely due to the expiration of a large lease in Lower Manhattan. Excluding this expiry and the impact of foreign exchange, same property net operating income on a proportionate basis grew 1.3% during the year.
Common equity per share at December 31, 2013 increased to $21.06 from $19.80 at December 31, 2012, and earned a total return of $2.38 per diluted share representing a 12% return on opening common equity per share.
OUTLOOK
"Brookfield closed out a successful year with an extremely active fourth quarter -- specifically on the leasing front as we signed 3.9 million square feet of leases globally, more than double our five-year quarterly average," said Dennis Friedrich, chief executive officer of Brookfield Office Properties. "The improving economy and tenant sentiment, coupled with the various growth initiatives we undertook in 2013, set the stage for future advancement and profitability for the company."
HIGHLIGHTS OF THE FOURTH QUARTER
Leased 3.9 million square feet of space during the quarter at an average net rent of $30.98 per square foot, representing a 7% increase over expiring net rents in the period. The portfolio occupancy rate finished the quarter at 89.1% or 90.1% excluding properties which are currently being redeveloped.
Leasing highlights from the fourth quarter include:
Ottawa - 1,039,000 square feet
Executed a short-term extension and obtained approval from the Treasury Board of Canada Secretariat for an average nine-year lease with Public Works and Government Services Canada for 1,036,000 square feet at Place de Ville I & II
New York - 917,000 square feet
A 20-year new lease with Jones Day for 330,000 square feet at 250 Vesey St., Brookfield Place
A 20-year new lease with The College Board for 145,000 square feet at 250 Vesey St., Brookfield Place
A 15-year new lease with Bain & Company for 96,000 square feet at the Grace Building
Houston - 466,000 square feet
A four-year expansion with Chevron for 95,000 square feet at 1600 Smith St.
A five-year renewal and expansion with Macquarie for 71,000 square feet at One Allen Center
A seven-year renewal with Chamberlain Hrdlicka for 56,000 square feet at Two Allen Center
A 12-year new lease with Marsh USA for 55,000 square feet at One Allen Center
Denver - 370,000 square feet
A seven-year renewal and expansion with DCP Midstream for 171,000 square feet at Republic Plaza
An 11-year new lease with BakerHostetler for 37,000 square feet at 1801 California
An eight-year new lease with Kleinfelder West, Inc. for 31,000 square feet at 1801 California
Washington, D.C. - 371,000 square feet
A 16-year new lease with Norton Rose Fulbright for 64,000 square feet at 799 Ninth St.
A 16-year new lease with Nixon Peabody for 64,000 square feet at 799 Ninth St.
A nine-year renewal and expansion with Government Scientific Sources for 50,000 square feet at Sunrise Tech Park
Calgary - 299,000 square feet
A 10-year new lease with TransCanada PipeLines for 290,000 square feet at Fifth Avenue Place
Los Angeles - 268,000 square feet
A one-year renewal with Latham & Watkins LLP for 95,000 square feet at Gas Company Tower
A five-year renewal and expansion with Southern California Gas Company for 56,000 square feet at Gas Company Tower
Leased, in 2013, 1.2 million square feet at Brookfield Place New York including the major new leases executed during the fourth quarter.
Entered into a 100% pre-let agreement with Schroders at London Wall Place development. Along with JV partner Oxford Properties, signed the London-based investment management firm to a 310,000-square-foot lease for the entirety of 1 London Wall Place, the first building of the two-phase, 500,000-square-foot project in the City of London.   
Acquired One North End Avenue in downtown Manhattan for $200 million. The 15-story building -- home to the New York Mercantile Exchange (NYMEX) -- will be integrated into the adjacent 8-million-square-foot Brookfield Place complex. Concurrent with the acquisition, NYMEX entered into a 13-year lease for 222,000 square feet following an initial 24-month lease for 449,000 square feet.
Acquired remaining 50% interest in 125 Old Broad St., London.  Concurrent with the acquisition, existing financing on the property was repaid and a new £182 million financing facility was put in place.
Sold 500 Jefferson Street in Houston and a 50% interest in Metropolitan Park in Seattle for gross proceeds of approximately $81 million.
Completed property-level financings and refinancings totaling approximately $1 billion, netting proceeds of approximately $250 million. The company refinanced $400 million of debt in the United States at an average rate of 2.89% with an average term of six years; C$300 million in Canada at an average rate of 4.38% with an average term of 10 years; and £200 million in the United Kingdom at an average rate of 4.43% with an average term of six years.
Upsized corporate revolver to $1 billion from $695 million, subsequent to year-end.  The upsized floating-rate credit facility holds a four-year term with two six-month extension options. The facility also features an accordion option through which Brookfield can draw an additional $250 million at the consent of the participating lending institutions.
UPDATE ON PROPOSED ACQUISITION BY BROOKFIELD PROPERTY PARTNERS (BPY)
On December 20, 2013, the Board of Directors of BPO, based on a recommendation of the Independent Committee of the Board, announced its intention to recommend that shareholders of BPO accept BPY's proposed prorated offer of either 1.0 BPY share (67% of offer) or $20.34 in cash (33% of offer) per BPO share. BPO understands that the Offer is expected to be formally commenced by BPY in the first quarter of 2014.
GUIDANCE
Brookfield Office Properties announced full-year 2014 diluted funds from operations guidance in the range of $0.95 to $1.01 per share, with a mid-point of $0.98 per share. The primary assumptions used for the mid-point of this guidance range are:
An exchange rate that assumes a weaker Canadian dollar at $1.08 to US$1.00, a weaker Australian dollar at $1.12 to US$1.00, and a stronger British pound sterling at £0.61 to US$1.00;
A decrease in same-store commercial property net operating income of 9.7% in 2014 (remains flat excluding Brookfield Place New York);
Dispositions totaling net proceeds of approximately $600 million, which we expect to reinvest into our development and redevelopment initiatives; and
No acquisitions.
Dividend Declaration 
The Board of Directors of Brookfield Office Properties declared a quarterly common share dividend of $0.14 per share payable on March 31, 2014 to shareholders of record at the close of business on February 28, 2014. Shareholders resident in the United States will receive payment in U.S. dollars and shareholders resident in Canada will receive their dividends in Canadian dollars at the exchange rate on the record date, unless they elect otherwise. Common shareholders have the option to participate in the company's Dividend Reinvestment Program, in which all or a portion of cash dividends can be automatically reinvested in common shares. The quarterly dividends payable for the Class AAA Series G, H, J, K, L, N, P, R, and T preferred shares were also declared payable on March 31, 2014 to shareholders of record at the close of business on March 14, 2014, and quarterly dividends payable for the Class AAA series V, W and Y were declared payable on February 14, 2014 to shareholders of record on January 31, 2014.
 

on February 1, 2014