Brookfield Properties Corporation Q1 2010 Earnings Call Transcript - TheStreet

Brookfield Properties Corporation Q1 2010 Earnings Call Transcript

Brookfield Properties Corporation Q1 2010 Earnings Call Transcript
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Brookfield Properties Corporation (BPO)

Q1 2010 Earnings Call

May 6, 2010 11:00 am ET

Executives

Melissa Coley - Vice President, Investor Relations and Communications

Ric Clark - Chief Executive Officer

Bryan Davis - Chief Financial Officer

Dennis Friedrich - President and Chief Executive Officer, U.S. Commercial Operations

Tom Farley - President and Chief Executive Officer, Canadian Commercial Operations

Alan Norris - President and Chief Executive Officer, Residential Operations

Steve Douglas - President

Analysts

Sloan Bohlen - Goldman Sachs

Sam Damiani - TD Newcrest

Michael Bilerman -Citigroup

John Guinee - Stifel Nicolaus

Alex Avery – CIBC

Mario Saric - Scotia Capital

Karine Macindoe - BMO Capital Markets

Ross Nussbaum - UBS

John Stewart - Green Street Advisors

Jimmy Shan - National Bank Financial

Neil Downey – RBC Capital Markets

P

resentation

Operator

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Welcome to the Brookfield Properties Q1 earnings conference call. (Operator Instructions) As a reminder this program is being recorded. Ms. Coley you may now begin your conference.

Melissa Coley

Good morning and welcome to Brookfield Properties’ first quarter 2010 conference call.

Before we begin our presentation, let me caution you our comments and discussion will include forward-looking statements and information and there are risks that actual results, performance or achievement could differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements and information. Certain material factors and assumptions were applied in drawing the conclusions and making the forecast and projections in the forward-looking statements and information. You may find additional information about such material factors and assumptions and the material factors that could cause our actual results, performance or achievements to differ materially set forth in our news release issued this morning.

I would now like to turn the call over to Ric Clark, Chief Executive Officer. Ric?

Ric Clark

Thank you, Melissa. Welcome everyone to our first quarter call and thanks to those of you who joined us for our annual meeting yesterday either in person or dialing in. Starting off, mastering the obvious I suppose I will start by saying our business and general outlook is very meaningfully better than it would have been a year ago and even a quarter ago.

Part of our quarter end discipline at least lately has been to pour through the transcripts of the quarterly earnings calls from financial institutions since financial institutions kind of drive the economies in a number of our markets and obviously the capital and debt markets that drive our business everywhere. We thought this would be a good thing to start to do.

Looking through these transcripts for the quarter we took away the following. All of these institutions reported improving economic conditions in general and ignoring write downs, better operating results in greatly diminished write downs. As for future outlook based on those that gave commentary, comments ranged from conditions are improving and the worst is behind us to it is better now but let’s wait and see.

Obviously there is a big tidal wave of loan maturities in the real estate sector alone coming in the 2012/2013 timeframe that have to be sorted through and there are issues with the financial conditions of most governments, not just the European countries that are currently dominating the headlines. On average the consensus from looking through these reports from the financial institutions is that conditions are improving and the worst is in fact behind us.

This consensus would be consistent with our experience within our operations over the first quarter. In general activity in our markets has picked up. Based on our quarter four 2009 experience carrying over into quarter one 2010 it feels to us that our markets have in fact turned the corner. This is an on-average comment and applies to most of our markets but there are of course variations from one market to the other.

The exceptions to us would be on the positive end in our New York City, Washington D.C., Houston and Toronto markets we are witnessing a more meaningful pick up in tenant interest and demand. In some cases rental and deal economic uplift have already been experienced. I have asked Tom Farley and Dennis Friedrich, our Canadian and U.S. Ops division heads respectively to try to give you some data points or a frame of reference on this which they will do in a few minutes.

On the negative side the Calgary market is beginning to grapple with new development overhang but you would have had to have been a direct descendent of Rip Van Winkle I think in this strained time. The Boston market is the Boston market. It has gotten neither better nor worse and it has been as it has been for a very long time. Two items to note from Houston, one good and one possible not so good, during the first quarter of 2010 we signed a 20 year, 1.2 million square foot lease renewal and expansion with KBR in two buildings in that market.

I would like to say congratulations to Paul [Lane] and Paul [Frasier] and their teams on this. Subsequent to Quarter One, Continental and United announced a merger with a consolidated headquarter to be based in Chicago. Obviously this is a bit of a buzz kill for a market that has been picking up momentum over the last few quarters. It is too early to know how this will play out but again Paul and Paul did a good job minimizing this exposure somewhat by renewing Continental’s lease in advance of maturity last year and Dennis I believe in his comments will add more color on what he knows about this and what it might mean to the Houston market.

Similar to our experience in our office division our residential operation mainly in Western Canada has seen a general improvement in activity and had a quarter one financial performance slightly better than our expectations. Alan Norris, who runs our residential division will have more color in his remarks which are coming shortly as well.

On the capital and debt market side after a couple of years of a liquidity freeze the real estate financing markets have shown steady improvement and liquidity is returning. We are I would say far from what I hope the real estate industry needs but liquidity is improving. We are seeing senior loan availability at the 60-65% loan-to-value level and debt yields of around plus or minus 11%. This would have compared to 50-55% loan-to-value levels not long ago and debt yields more like 15%.

We have seen some [inaudible] ability up to 70-75% loan-to-value levels and spreads have tightened from 400 basis points not long ago to about 225-300. All of this sounds good but the market remains a very bifurcated market. Lending is really only done when it is done for better assets and for the best markets and to the best sponsors.

Maybe before we get to Bryan Davis, our CFO for his remarks, and I know just from the calls we have been getting this morning due to our change over to IFRS there might be lots of questions on that so we want to make sure we leave ample time for that. So maybe the rest of our comments in general will be short this quarter versus other quarters. If we have missed anything anybody wants to talk about please pick it up in your questions at the end.

A few high level statistics before we get to Bryan. If you turn to page 21 of your supplemental you will note overall leasing activity in our managed portfolio for the quarter was 2.3 million square feet. Now this is obviously a high level relative to last year. It was 50% of last year’s overall leasing production and I think a good data point to back up our view things are improving and we may well have turned the corner. I would also point out this leasing activity is double last year’s quarterly average. So again we had a very, very good quarter on the leasing side.

Still on page 21 of our supplemental this leasing was completed at initial rents that were $1.10 greater per square foot greater than expiring rents and $4.28 greater using average contractual rents from these new transactions. Turning to page 22 of our supplemental you will note we finished the quarter with an overall occupancy of 94.8%, again in our managed portfolio. This is down 20 basis points from what is noted on this slide for year-end 2009 but what is not noted and I think is useful to point out is that quarter one 2010’s dip is attributable to the inclusion of the Bay Adelaide Centre as an operating property for the first time as is required under IFRS accounting.

Tom will give you more details on where Bay Adelaide Centre stands today. He has done some leasing since the end of the quarter and I think he will get to that in a minute. Bay Adelaide Centre aside, overall occupancy would have increased to 95.2% so basically a 20 basis point improvement over where we were last quarter. So with this in mind occupancy in our Canadian portfolio decreased by 20 basis points versus the more meaningful decrease shown on slide 22 and the U.S. portfolio as you will see on slide 22 showed 40 basis point improvement to 93.9%.

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