By David M. Levitt
May 1 (Bloomberg) -- Brookfield Properties Corp., the owner of lower Manhattan’s World Financial Center, said first-quarter earnings excluding items fell as commercial and residential property income declined.
Funds from operations was 32 cents a share, less than the 35 cents projected by analysts in a Bloomberg survey. The figure was little changed from a year earlier, New York-based Brookfield said in a statement today.
Revenue fell 9.1 percent to $592 million, Brookfield said. The company gets 29 percent of net operating income from lower Manhattan. Rents have declined in Manhattan by as much as 20 percent and vacancies are rising as Brookfield faces the potential loss of its largest tenant, Merrill Lynch & Co. The firm may vacate most of the 2.8 million square feet it occupies at the financial center in a lease that runs through 2013.
“Brookfield leased more space than we expected but at lower rents,” JPMorgan Chase & Co. real estate analyst Anthony Paolone wrote in research note today. “We see longer-term headwinds” including $1.6 billion in debt due in 2011 from its joint-venture acquisition of Trizec Properties in 2006 and the Merrill lease, he wrote.
Paolone rates the shares “underweight.”
Chief Executive Office Richard “Ric” Clark said today during a conference call he had no update to offer on Merrill’s lease or Brookfield’s debt repayment plans on the Trizec transaction. Brookfield doesn’t anticipate raising new equity or cutting its dividend “at this time,” Clark said.
Occupancy Falls
Brookfield’s occupancy rates in most of its office markets were down from the fourth quarter, Paolone wrote. The company had a 7 percent decline in Boston, a 1.5 percent decline in Washington, and a 0.9 percent decline in midtown Manhattan, he said.
Occupancy declined in seven of the company’s eight U.S. markets from the fourth quarter, according to a regulatory filing.
Net operating income in Brookfield’s commercial property unit declined 3.8 percent to $327 million in the first quarter and fell 67 percent to 6 million in residential development. Brookfield said it leased 1.8 million square feet of space in the period.
Net income for the three months ended March 31 rose to $38 million, or 10 cents a share, from $23 million, or 6 cents, a year earlier, the company said.
Brookfield fell 22 cents, or 3 percent, to $7.25 New York Stock Exchange composite trading, after rising 4.2 percent earlier in the day. The stock is down 65 percent the last 12 months. The Bloomberg Real Estate Investment Trust Index is down 56 percent in the same period.
Average “class A” lower Manhattan office rents dropped 12 percent in the first quarter to $49.65 a square foot, broker Colliers ABR reported. Downtown rents have fallen 20 percent since peaking at $62.27 a foot last August.
Brookfield owned or held interests in 108 commercial properties totaling 75 million square feet in the U.S. and Canada. It has buildings in downtown and midtown Manhattan, Boston, Washington, Los Angeles, Houston and Toronto. It also develops residential properties in Alberta and Colorado.
It’s the second largest U.S. owner of office buildings by square footage, according to a survey by trade publication National Real Estate Investor.
To contact the reporter on this story: David M. Levitt in New York at dlevitt@bloomberg.net.
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