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Brookfield Office Properties Reports Strong Second Quarter 2011 Results

Stocks in this article: BPO

Brookfield Office Properties Inc. (BPO: NYSE, TSX) today announced that net income attributable to common shareholders for the quarter ended June 30, 2011 was $631 million or $1.11 per diluted share, compared with $172 million or $0.31 per diluted share in the second quarter of 2010.

Funds from operations (“FFO”) for the quarter ended June 30, 2011 was $166 million or $0.30 per diluted common share, compared with $156 million or $0.30 per diluted common share on a comparable basis during the same period in 2010. FFO in the prior period with an investment gain was $209 million or $0.40 per diluted common share.

Commercial property net operating income for the second quarter of 2011 increased to $217 million, compared with $180 million in the second quarter of 2010, largely as a result of the contribution from the Australian portfolio acquired in September 2010.

OUTLOOK

“As we witness an improvement in vacancy rates, steady demand and controlled supply within our primary markets, we remain optimistic about our performance over the balance of the year and the next few years to come,” stated Ric Clark, chief executive officer of Brookfield Office Properties. “Our high-quality portfolio of commercial properties located in the world’s most dynamic commercial centers allows us to build deep, long-term ties to corporate tenants around the globe.”

HIGHLIGHTS OF THE SECOND QUARTER

Leased 1.6 million square feet of space during the quarter at an average net rent of $26.74 per square foot. The portfolio occupancy rate finished the quarter at 93.3%. Highlights from the quarter include:

Houston – 454,000 square feet

  • A seven-year renewal with Chevron for 311,000 square feet at Continental Center I
  • An 11-year lease with Forrest Oil for 43,000 square feet at One Allen Center

Toronto – 322,000 square feet

  • A 10-year renewal and expansion with Citco Inc. for 116,000 square feet at Hudson’s Bay Centre
  • A 10-year renewal and expansion with the McGraw-Hill Companies for 37,000 square feet at Exchange Tower

New York – 254,000 square feet

  • An 11-year expansion with Royal Bank of Canada for 112,000 square feet at Three World Financial Center
  • A 12-year lease with Kilpatrick Townsend & Stockton for 45,000 square feet at the Grace Building

Los Angeles – 219,000 square feet

  • A 10-year renewal with Bank of America for 173,000 square feet at Bank of America Plaza

Boston – 169,000 square feet

  • A 12-year lease with LPL Holdings for 69,000 square feet at 75 State Street, subsequent to quarter-end
  • A 10-year lease with L.E.K. Consulting for 61,000 square feet at 75 State Street

Acquired a 75% interest in 450 West 33 rd Street in Manhattan through a joint venture with Broadway Partners valued at approximately $520 million. The 1.8-million-square-foot office building is directly adjacent to the company’s 5.4-million-square-foot Manhattan West development site on 9 th Avenue.

Acquired a further 50% interest in two trophy Australian office towers, Southern Cross West in Melbourne and BankWest Tower in Perth, for a combined AUD $250 million (USD $263 million), subsequent to quarter-end. Both acquisitions were made through Brookfield Prime Property Fund (ASX: BPA), in which Brookfield Office Properties holds a 73% interest.

Acquired a further 20% interest in the Brookfield-managed assets in the U.S. Office Fund from an institutional partner for $360 million, subsequent to quarter-end. The acquisition brings Brookfield’s stake in the Fund to 83%.

Announced $250 million renovation plan for the retail areas of the World Financial Center in Lower Manhattan to boost the appeal of the property for both commercial tenants and a steadily growing number of neighborhood residents. The plan calls for a new 600-seat dining terrace overlooking the North Cove Marina and Hudson River, a 25,000-square-foot European-style marketplace, and a new double-stacked fashion corridor.

Completed rights offering for shareholders to acquire shares of Brookfield Residential Properties Inc. (NYSE: BRP) at $10 per share. Brookfield Office Properties netted $515 million through the sale of BRP shares.

Sold 1400 Smith Street in Houston to full-building tenant Chevron for $340 million. Brookfield Office Properties acquired 1400 Smith in 2006 for $120 million.

Refinanced or secured new financing of $1.1 billion, with proceeds used to repay $846 million of U.S. Office Fund acquisition financing and $297 million of legacy CMBS financing which matured in May 2011. Financings completed during the quarter include:

  • A pool of eight U.S. Office Fund assets for $650 million at an interest rate of LIBOR + 3.25% for a three-year term plus two one-year extensions
  • Two Allen Center, Houston, for $200 million at an interest rate of 6.45% for a seven-year term
  • Three Allen Center, Houston, for $165 million at an interest rate of 6.12% for a five-year term
  • RBC Plaza, Minneapolis, for $66 million at an interest rate of LIBOR + 2.0% for a two-year extension
  • 2401 Pennsylvania Ave., Washington, DC for $30 million at an interest rate of LIBOR + 2.20% for a three-year term plus two one-year extensions

Acquired and retired $50 million of mezzanine debt on 75 State Street, Boston at a discount from face value.

Increased the size of the corporate revolver from $565 million to $600 million and received a commitment to increase a further $35 million to $635 million subsequent to quarter-end. Also established a C$125 million revolving corporate credit facility in Canada with a number of Canadian chartered banks with a three-year term and one one-year extension option at an interest rate of bankers’ acceptance + 2%.

Announced management changes. Mitch Rudin, previously head of CB Richard Ellis’ Tri-State operations, was named president and CEO of U.S. Commercial Operations. In addition, Dennis Friedrich, who previously held the position, was promoted to president and global chief investment officer. Tom Farley was promoted to president and global chief operating officer, and Jan Sucharda was promoted to president and chief executive officer of Canadian Commercial Operations.

Dividend Declaration

The Board of Directors of Brookfield Office Properties declared a quarterly common share dividend of $0.14 per share payable on September 30, 2011 to shareholders of record at the close of business on September 1, 2011. 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 F, G, H, I, J, K, L, N and P preferred shares were also declared payable on September 30, 2011 to shareholders of record at the close of business on September 15, 2011.

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