Brookfield Properties Reports Second Quarter 2010 Results
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Brookfield Properties Reports Second Quarter 2010 Results

All dollar references are in U.S. dollars unless noted otherwise.

NEW YORK, July 30, 2010 – Brookfield Properties Corporation (BPO: NYSE, TSX) today announced that net income for the three months ended June 30, 2010 was $154 million or $0.28 per diluted share.

Funds from operations (“FFO”) was $209 million or $0.40 per diluted share for the three months ended June 30, 2010, compared with $123 million or $0.32 per diluted share during the same period in 2009. The results include a realized gain of $53 million, or $0.10 per diluted share, related to an investment return.

Commercial property net operating income for the second quarter of 2010 was $180 million, compared with $162 million during the second quarter of 2009. Residential property net operating income for the second quarter of 2010 was $33 million, compared with $13 million during the second quarter of 2009.

Brookfield’s managed portfolio occupancy rate finished the quarter at 94.8%, consistent with the previous quarter.

HIGHLIGHTS OF THE SECOND QUARTER

Leased 1.3 million square feet of space at an average net rent of $26 per square foot, which represents an 8% improvement versus the average expiring net rent of $24 per square foot on this space in the quarter. Renewals represent 66% of the total with new leases representing the remainder. Highlights include:

Toronto – 489,000 square feet
  • A five-year, 107,000-square-foot lease renewal with Aird & Berlis LLP at Bay Wellington Tower
  • A 10-year 67,000-square-foot lease renewal with Lang Michener LLP at Bay Wellington Tower
  • A new 10-year, 50,000-square-foot lease with Gluskin Sheff & Associates Inc. at Bay Adelaide Centre
Calgary – 299,000 square feet
  • A 12-year, 290,000-square-foot lease renewal with Canadian Natural Resources at Bankers Hall
Los Angeles – 223,000 square feet
  • A 12-year, 147,000-square-foot lease renewal with USC’s Information Sciences Institute at Marina Towers
New York – 100,000 square feet
  • A 10-year, 55,000-square-foot expansion with the Securities & Exchange Commission at Three World Financial Center
Recorded an investment gain of $53 million from repayment of a loan purchased at a discount and secured by the equity in a portfolio of office properties in the Washington, DC area. The company, together with institutional clients, owned a 51% interest in the loan.

Reduced 2011 debt exposure by entering into an agreement to receive the net benefit from Brookfield Asset Management’s acquisition at a discount-to-face-value of $570 million mezzanine debt of the U.S. Office Fund. As a result, the company has pre-funded the bulk of the equity deleveraging required to refinance this portfolio, and the company intends to refinance the properties on a more conventional basis over the next 12 months. The properties in this portfolio have performed well over the past four years and while capitalization rates have increased since purchase, cash flows have grown substantially. With the two largely offsetting each other, and with the recent mezzanine debt repurchases being turned into a future equity investment in the Fund, this should ensure that investment grade financing can be secured.

Acquired remaining 50% ownership interest in 77 K Street, Washington, DC.
Brookfield purchased the remaining equity interest from its 50% partner in the venture for $38.6 million or $237 per square foot. In addition, the company renewed a $93.5 million loan on the asset to May 2013.

Elected a new director, Michael Hegarty. The company extends its sincere appreciation to Dr. Roderick Fraser who is leaving the board after five years of service.

Announced management changes. Steve Douglas has resigned as President of Brookfield Properties to become the Chief Financial Officer of General Growth Properties. Brookfield Properties Chief Executive Officer Ric Clark is re-assuming the title of President and Chief Executive Officer. Tom Farley is relinquishing the title of President of Canadian Commercial Operations, remaining CEO, to work with Ric Clark on certain global initiatives. Jan Sucharda, previously Chief Operating Officer of Canadian Commercial Operations, has been named President and Chief Operating Officer of Canadian Commercial Operations.

OUTLOOK

“With solid first half results, noticeable improvement in leasing activity especially in New York and Washington, DC, the progress that we have made toward the deleveraging and refinancing of our US Office Fund debt which matures in 2011, and with a 15-million-square-foot development pipeline, Brookfield Properties remains well-positioned to ride out the balance of the global economic downturn and to capitalize on its recovery,” stated Ric Clark, CEO of Brookfield Properties Corporation.

* * *

Net Operating Income and FFO
This press release and accompanying financial information make reference to net operating income and funds from operations on a total and per share basis. Net operating income is defined as income from property operations after operating expenses have been deducted, but prior to deducting financing, administrative, fair value adjustments and income tax expenses. Brookfield Properties defines FFO attributable to common shareholders as income before fair value adjustments, depreciation, income taxes and certain other non-cash items as and when they arise, less non-controlling interests in the foregoing. FFO is determined as FFO from consolidated properties, FFO from unconsolidated joint ventures and FFO from discontinued operations. The company uses net operating income and FFO to assess its operating results. Net operating income is important in assessing operating performance and FFO is a widely-used measure to analyze real estate. The company provides the components of net operating income and a full reconciliation from net income to FFO with the financial information accompanying this press release. The company reconciles FFO to net income as opposed to cash flow from operating activities as it believes net income is the most comparable measure. Net operating income and FFO are both measures which do not have any standard meaning and therefore may not be comparable to similar measures presented by other companies.

Forward-Looking Statements
This press release, particularly the “Outlook” section, contains forward-looking statements and information within the meaning of applicable securities legislation. Although Brookfield Properties believes that the anticipated future results, performance or achievements expressed or implied by the forward-looking statements and information are based upon reasonable assumptions and expectations, the reader should not place undue reliance on forward-looking statements and information because they involve assumptions, known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the company to differ materially from anticipated future results, performance or achievement expressed or implied by such forward-looking statements and information. Accordingly, the company cannot give any assurance that its expectations will in fact occur and cautions that actual results may differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially from those set forth in the forward-looking statements and information include, but are not limited to, general economic conditions; local real estate conditions, including the development of properties in close proximity to the company’s properties; timely leasing of newly-developed properties and re-leasing of occupied square footage upon expiration; dependence on tenants' financial condition; the uncertainties of real estate development and acquisition activity; the ability to effectively integrate acquisitions; interest rates; availability of equity and debt financing; the impact of newly-adopted accounting principles on the company's accounting policies and on period-to-period comparisons of financial results, and other risks and factors described from time to time in the documents filed by the company with the securities regulators in Canada and the United States, including in the Annual Information Form under the heading “Business of Brookfield Properties – Company and Real Estate Industry Risks,” and in the company’s annual report under the heading “Management’s Discussion and Analysis.” The company undertakes no obligation to publicly update or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, except as required by law.

Dividend Declaration
The Board of Directors of Brookfield Properties declared a quarterly common share dividend of $0.14 per share payable on September 30, 2010 to shareholders of record at the close of business on September 1, 2010. 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 and N preferred shares were also declared payable on September 30, 2010 to shareholders of record at the close of business on September 15, 2010.

Conference Call
Analysts, investors and other interested parties are invited to participate in the company’s live conference call reviewing 2010 second quarter results on Friday, July 30, 2010 at 11:00 a.m. eastern time. Scheduled speakers are Ric Clark, Chief Executive Officer; and Bryan Davis, Chief Financial Officer. Management’s presentation will be followed by a question and answer period.

To participate in the conference call, please dial 877.409.7635, pass code 85395681, five minutes prior to the scheduled start of the call. Live audio of the call will also be available via webcast at www.brookfieldproperties.com. A replay of this call can be accessed through August 30, 2010 by dialing 800.642.1687, pass code 85395681. A replay of the webcast, as well as a podcast download, will be available at www.brookfieldproperties.com for one year.

Supplemental Information
Investors, analysts and other interested parties can access Brookfield Properties’ Supplemental Information Package before the market open on July 30, 2010 at www.brookfieldproperties.com under the Investors/Financial Reports section. This additional financial information should be read in conjunction with this press release.

Brookfield Properties Profile
Brookfield Properties owns, develops and manages premier office properties. Its current managed portfolio is comprised of interests in 93 properties totaling 70 million square feet in the downtown cores of New York, Boston, Washington, DC, Los Angeles, Houston, Toronto, Calgary and Ottawa, making it one of the largest owners of commercial real estate in North America. Landmark assets include the World Financial Center in Manhattan, Brookfield Place in Toronto, Bank of America Plaza in Los Angeles and Bankers Hall in Calgary. The company’s common shares trade on the NYSE and TSX under the symbol BPO. For more information, visit www.brookfieldproperties.com.

Contact: Melissa Coley, Vice President, Investor Relations and Communications
Tel: 212.417.7215; Email: melissa.coley@brookfieldproperties.com


CONSOLIDATED BALANCE SHEET

(US Millions, except per share amounts)

June 30, 2010

December 31, 2009(1)

 



 

 

Assets



 

 

 Investment properties
       

  Commercial properties

$

9,659

$

9,513

  Commercial developments


443

 

469

Equity accounted investments(2)
   2,160    1,851

Residential developments


1,220

 

1,235

Receivables and other
   2,116    1,924

Restricted cash and cash equivalents


37

 

39

Cash and cash equivalents
  127
   104

Assets held for sale(3)


315

 

311

 

$

16,077

$

15,446

 



 

 

Liabilities and equity



 

 

Commercial property debt

$

5,151

$

5,151

Residential development debt


328

 

177

Accounts payable and other liabilities


693

 

764

Deferred income tax liability


513

 

516

Liabilities related to assets held for sale(4)


158

 

174

Capital securities – corporate


1,001

 

1,009

Non-controlling interests – fund subsidiaries


345

 

305

Non-controlling interests – other subsidiaries


255

 

169

Preferred equity – subsidiaries


359

 

363

Preferred equity – corporate


561

 

304

Common equity   6,713   6,514
  $  16,077  $   15,446

Book value per common share

$

13.37

$

12.99

Book value per common share – pre-tax
 $  14.36  $  13.99

(1)Restated for adoption of IFRS

(2)Includes the company’s investment in the U.S. Office Fund as well as other properties and entities held through joint ventures and associates

(3)Comprises $313 million of commercial properties and $2 million of other assets at June 30, 2010 (December 31, 2009 -- $307 million and $4 million, respectively)

(4)Comprises $149 million of commercial property debt and $9 million of other liabilities at June 30, 2010 (December 31, 2009 -- $156 million and $18 million, respectively)


CONSOLIDATED STATEMENT OF INCOME

 

Three months ended June 30

Six months ended June 30

     IFRS        CGAAP As reported    IFRS        CGAAP As reported

(US Millions)


2010

   2009(1)

 

2009


2010

   2009(1)

 

2009

 



   

 

 



   

 

 

Total revenue

$

446

 $  347

$

619

$

838

$
 657

$

1,203

 



   

 

 



   

 

 

Net operating income



   

 

 



   

 

 

Commercial operations


180

   162


332


351

   315

654

Residential  operations


33

   13

 

13


48

   19

 

19

     213    175    345    399    334    673

Interest and other


16

   17

 

14


34

   24

 

23

 


229

   192

 

359


433

   358

 

696

Expenses



   

 

 



   

 

 

Interest



   

 

 



   

 

 

  Commercial property debt


76

   74

 

132


147

   146

 

261

  Capital securities – corporate


15

   14

 

14


29

   26

 

26 

  Capital securities – fund subsidiaries


   —

 

         —


       —

   —

 

       (6)

General and administrative


31

   27

 

26


59

   54

 

52

Depreciation


4
   3

 

126


7
   6

 

246

Income before gains (losses), share of net earnings (losses) from equity accounted investments and income taxes


103

   74

 

67  


191

   126

 117  

Fair value and other gains (losses)


(54)

   (82)

 

(49)


12

   (468)

 

(49)

Share of net earnings (losses) from equity accounted investments(2)


148

   (405)

 



298

   (714)

 

Income (loss) before income tax expense


197

   (413)

 

116


501

   (1,056)

 

166

Income tax expense (benefit)


    29  

   7

 

51


60   

   (27)

 

57

Net income (loss) from continuing operations


168

   (420)

65


441

   (1,029)


109

Income from discontinued operations


6

   3

 

4


10

   6

 

8

Net income (loss) for the period

$

174

 $  (417)

$

69

$

451

 $  (1,023)

$

117

Non-controlling interests


20

   (21)

 

9


45

   (22)

 

19

Net income (loss) attributable to common shareholders

$

154

 $  (396)

$

60

$

406

 $  (1,001)

$

98


(1)Restated for adoption of IFRS

(2)Includes fair value gains of $85 million and $178 million, respectively, for the three and six months ended June 30, 2010 and losses of ($464) million and ($823) million, respectively, for the three and six months ended June 30, 2009



 

Three months ended June 30

Six months ended June 30

(US Dollars)


2010

 

2009(1)


2010

 

2009(1)

Earnings (loss) per share attributable to common shareholders – basic
               




 



        

 


Continuing operations
 $  0.28  $  (1.02)  $  0.75  $  (2.58)

Discontinued operations


0.01

 

0.01


0.02

 

0.02


$

0.29

$

(1.01)

$

0.77

$

(2.56)


(1)Restated for adoption of IFRS



 

Three months ended June 30

Six months ended June 30

(US Dollars)


2010

 

2009(1)


2010

 

2009(1)

Earnings (loss) per share attributable to common shareholders – diluted
               




 



        

 


Continuing operations
 $  0.27  $  (1.02)  $  0.70  $  (2.58)

Discontinued operations


0.01

 

0.01


0.02

 

0.02


$

0.28

$

(1.01)

$

0.72

$

(2.56)


(1)Restated for adoption of IFRS



RECONCILIATION TO FUNDS FROM OPERATIONS


 

Three months ended June 30

Six months ended June 30

(US Millions, except per share amounts)


2010

 

2009(1)


2010

 

2009(1)

Net income (loss) attributable to common shareholders
Add (deduct) non-cash and certain other items:
 $  154 $
 (396)
 $  406  $  (1,001)

  Fair value and other gains (losses)


54

 

82


(12)

 

468

  Fair value adjustments in earnings from
equity accounted investments
   (85)    464    (178)    823
  Non-controlling interests in above items
   9    (32)    21    (35)
  Income taxes
   29    7    60    (27)
  Fair value adjustments on discontinued operations   (2)
  —    (2)
  — 
  Realized gain on investment
  53
  —    53
 
  Cash payments under interest rate swap contracts(2)    (3)    (2)    (6)    (3)

Funds from operations

$

  209   

$

 123  

$

342

$

225 

Preferred share dividends    (8)    —    (17)    (1)
FFO to common shareholders
 $  201  $  123  $  325  $  224

Weighted average common shares outstanding


506.6

 

391.6


506.0

 

391.4

Funds from operations per common share

$

0.40

$

0.32

$

0.65

$

0.58


(1)Restated for adoption of IFRS

(2)Represents payments pursuant to $1 billion of floating rate debt that has been swapped to fixed rate at an average of 1.38%



COMMERCIAL PROPERTY NET OPERATING INCOME

 

Three months ended June 30

Six months ended June 30

(US Millions)


2010

 

2009(1)


2010

 

2009(1)

Revenue from continuing operations(2)

$

296

$

269

$

587

$

533

Operating expenses


    (226)

 

(107)


    (236)

 

    (218)

Net operating income

$

180

$

162

$

351

$

315


(1)Restated for adoption of IFRS

(2)Including fee income



RESIDENTIAL DEVELOPMENT NET OPERATING INCOME


 

Three months ended June 30

Six months ended June 30

(US Millions)


2010

 

2009


2010

 

2009

Revenue

$

136

$

70

$

226

$

111

Operating expenses


       (103)

 

(57)


      (178)

 

(92)

Net operating income

$

33

$

13

$

48

$

19


DISCONTINUED OPERATIONS(1)

 

Three months ended June 30

Six months ended June 30

(US Millions)


2010

 

2009


2010

 

2009

Revenue from discontinued operations

$

14

$

13

$

28

$

26

Operating expenses
   (7)    (7)    (14)    (14)
Net operating income from discontinued operations
   7    6    14    12

Interest expense


(3)

 

(3)


(6)

 

6

Funds from discontinued operations

$

      4   

$

3  

$

 8   

 $

6

Fair value gains (losses)


2




        2   


Discontinued operations
 $  6  $  3  $  10 $
 6

(1)Include four properties held for sale in Minneapolis 


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