Brookfield Office Properties Reports Third Quarter 2013 Results

Brookfield Office Properties Inc. announced its financial results for the quarter ended September 30, 2013. The financial results are based on International Financial Reporting Standards ("IFRS") unless otherwise noted.
 
Funds from operations (FFO) was $167 million or $0.29 per diluted common share for the quarter ended September 30, 2013, compared with $164 million or $0.29 per diluted common share during the same period in 2012. Included in FFO for the current quarter was a break fee of $7 million related to the early refinancing of Suncor Energy Centre. Excluding this one-time item FFO was $174 million or $0.30 per share.
 
Net income attributable to common shareholders in the third quarter of 2013 was $223 million or $0.38 per diluted share, compared with $376 million or $0.66 per diluted share in the third quarter of 2012. The reduction in net income for the quarter was due primarily to a decrease in fair value gains, which amounted to $105 million in 2013 compared with $306 million during the same period in the prior year.
Commercial property net operating income for the third quarter of 2013 decreased to $344 million, compared with $345 million in the third quarter of 2012. Same property net operating income during the third quarter of 2013 increased by 1.0%, excluding the impact of foreign exchange, compared with the same period in the prior year.
 
Common equity per share at September 30, 2013 increased to $21.03 from $19.80 as at December 31, 2012, and earned a total return of $2.00 per diluted share representing a 13% annualized return on opening common equity per share.
 
OUTLOOK
"The firm continues to execute on major growth initiatives as we recently increased our presence in existing core markets, established an investment platform in a new target market, and kicked off our newest signature development project," said Dennis Friedrich, chief executive officer of Brookfield Office Properties.
 
HIGHLIGHTS OF THE THIRD QUARTER
Leased 1.1 million square feet of space during the quarter at an average net rent of $34.81 per square foot, representing a 10% increase over expiring net rents in the period. The portfolio occupancy rate finished the quarter at 92.1%.
 
Leasing highlights from the third quarter include:
 
New York - 261,000 square feet
  • An 11-year new lease with Bank of Nova Scotia for 99,000 square feet at Brookfield Place - 250 Vesey St.
  • A 16-year new lease with Wisdom Tree Investments for 38,000 square feet at 245 Park Avenue
Houston - 178,000 square feet
  • A 10-year expansion with Rosetta Resources for 28,000 square feet at Heritage Plaza
  • A 10-year expansion with Plains Marketing for 24,000 square feet at Three Allen Center
Washington, D.C. - 160,000 square feet
  • A five-year renewal with the GSA for 30,000 square feet at Sunrise Tech Park, Reston, VA
  • An eight-year new lease with Sirens Media, LLC, for 26,000 square feet at Silver Spring Metro Plaza, Silver Spring, MD
Toronto - 117,000 square feet
  • A six-year new lease with MCW Consultants Ltd. for 35,000 square feet at Queen's Quay Terminal
  • A seven-year new lease with The Catalyst Group for 25,000 square feet at Bay Wellington Tower
London - 60,000 square feet
  • A 15-year new lease with i2 Offices Business Centre for 32,000 square feet at 99 Bishopsgate
  • A 10-year new lease with BECS for 28,000 square feet at 99 Bishopsgate
Sydney - 42,000 square feet
  • A 10-year new lease with SAI Global for 40,000 square feet at E&Y Centre
Closed on the Acquisition of MPG Office Trust, Inc. 
A newly created fund (DTLA Holdings), controlled by Brookfield Office Properties, closed on the acquisition of MPG Office Trust, Inc., subsequent to the third quarter. Brookfield Office Properties now holds a 47% interest in seven class A office properties totaling 8.3 million square feet in downtown Los Angeles, as well as the FIGat7th retail center and a strategically located development site.
 
Commenced development of Brookfield Place Calgary
The company kicked off the first phase in the development of a 2.4-million-square-foot office project in downtown Calgary with Cenovus Energy Inc., a leading Canadian oil company, secured as the 71% lead tenant of the 1.4-million-square-foot East tower. Upon completion, the East tower will be the tallest structure in western Canada.
 
Entered the San Francisco market with purchase of 685 Market Street for $80 million
Acquired a 205,000-square-foot class A office building, also known as the Monadnock building, in the South Financial District submarket, subsequent to the third quarter.
 
Acquired remaining 50% interest in Washington, D.C. asset for $72 million
Brookfield Office Properties purchased the 50% interest it did not previously own in the Victor Building. 
 
Sold two non-core assets for net proceeds of approximately $160 million
Disposed of 2000 L St. in Washington, D.C. and Landmark Square in Long Beach, CA. 
 
Transferred Bay Adelaide Centre East to subsidiary for C$635 million
Sold second phase of Bay Adelaide Centre project in Toronto -- the currently under construction East tower -- to 83%-owned subsidiary Brookfield Canada Office Properties. Brookfield Office Properties sold the asset on an "as-if-completed-and-stabilized basis," and retains responsibility for construction, lease-up and financing. The project is currently 60% pre-leased with expected completion in late 2015. 
 
Completed property-level refinancings totaling $1.2 billion, netting proceeds of approximately $166 million
The company refinanced $307 million of debt in the United States at an average rate of 1.91% with an average term of five years; C$275 million in Canada at an average rate of 5.19% with an average term of 20 years; and $602 million in Australia at an average rate of 5.66% with an average term of five years.
 
Update on Proposed Acquisition by Brookfield Property Partners
On September 30, 2013, Brookfield Property Partners, L.P., announced a proposal to acquire Brookfield Office Properties by way of a tender offer for "any or all" of the common shares of Brookfield Office Properties it does not own. The disinterested directors of Brookfield Office Properties' board of directors are currently reviewing and considering the proposal.
 
Guidance Update
Excluding one-time items incurred in 2013, which amount to $0.06 per share including: a litigation provision (Q2); a debt break fee (Q3); and costs related to the MPG transaction (Q4), Brookfield Office Properties expects to report full-year 2013 results within its original guidance range of $1.16 - $1.20 per share, with a mid-point of $1.18.
 

 

on October 25, 2013