May 1, 2009 / 12:21 PM / 8 years ago

UPDATE 2-Brookfield Properties FFO misses; warns on outlook

* Q1 FFO per share $0.32 misses, est $0.35/shr

* Q1 EPS $0.10 vs $0.06

* Leased 1.8 million feet of space in the quarter

(In U.S. dollars unless noted. Recasts, adds details from conference call, analyst quotes; adds TORONTO dateline)

By Jennifer Kwan

TORONTO, May 1 (Reuters) - Brookfield Properties Corp BPO.TO, one of Manhattan's biggest landlords, said a weak residential market could keep a key measure of its 2009 performance at the low end of its expectations, as it reported quarterly results that fell short of analyst forecasts.

Ric Clark, chief executive of the Toronto-based real estate company, said first-quarter results for its residential division were "meager" and could prove a source of further weakness ahead.

"Our current view is that results of this division may trend to the low end of our expectations for the year," said Clark. "Based on this, we're not currently changing our guidance but believe we may be trending to the low end of our guidance range."

Clark said demand is still moderate, while oversupply issues persist and margins are under pressure. The company will have a clearer picture of the residential landscape in the second quarter, he said.

Operating income at Brookfield's commercial division also shrunk during the quarter.

The company has forecast funds from operations of $1.42-$1.49 a share in 2009, before lease termination income, special fees and gains. That compares with FFO of $1.59 the previous year.

"Their outlook for the commercial division is basically unchanged," Gail Mifsud, real estate and lodging analyst at Blackmont Capital in Toronto. "Where they're guiding us lower is on the residential operations and we know that has been a source of volatility in terms of their earnings."

Brookfield's quarterly funds from operations for the three months ended Mar. 31 came in at $127 million, or 32 cents a share, compared with $126 million, or 32 cents a share, a year ago.

Analysts had expected, on average, FFO of 35 cents a share, according to Reuters Estimates.

Funds from operations is a benchmark measure in the real estate sector that strips out the distorting effects of depreciation and other factors from earnings.

"I wouldn't say it's a big miss," said Mario Saric, analyst at Scotia Capital.

By Friday afternoon, the company's shares were flat, down 3 Canadian cents at C$8.84 on the Toronto Stock Exchange, after rising 4.3 percent earlier in the day.

Earnings for the first quarter rose to $38 million, or 10 cents a share, from $23 million, or 6 cents a share.

Net operating income from its residential development operations fell to $6 million from $18 million, the company said, while commercial property net operating income fell to $327 million from $340 million in the year-earlier period.

The commercial figure has assumed more importance on concern that the financial crisis could hit that area of Brookfield's business next.

"Commercial real estate fundamentals will tend to lag the overall economy so if that historic trend continues, going forward, with the economy still suffering, it's an indication that vacancies could go higher," said Saric.

Saric said the company is "seeing their occupancy levels hold up relatively well," given the current economic climate.

Brookfield Properties said it is still in discussions with Merrill Lynch. Merrill Lynch, which earlier this year was acquired by Bank of America (BAC.N), is a key tenant that occupies about 2.6 million of office space at World Financial Center in New York.

During the quarter, Brookfield said it had leased out 1.8 million square feet of space, compared with about 1 million square feet of space.

Brookfield's 75-million-square-foot portfolio comprises interests in 108 properties and includes the World Financial Center in Manhattan, Brookfield Place in Toronto and Bankers Hall in Calgary, Alberta. (Additional reporting by Supantha Mukherjee in Bangalore) (Reporting by Jennifer Kwan)

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