February 3, 2010 / 8:25 PM / in 8 years

PREVIEW-Softer Q4 results seen for Canadian property sector

 * Brookfield Properties first to report on Friday
 * Eye on capital raisings, how to deploy funds
 * Commercial property market still seen as soft
 (In U.S. dollars unless noted)
 By Ka Yan Ng and Isheeta Sanghi
 TORONTO/BANGALORE, Feb 3 (Reuters) - Canada's commercial
real estate sector is set to see a dip in year-over-year funds
from operations, largely as a result of recent capital raisings
and softer property conditions.
 Owners of office, retail, industrial and residential space
begin the fourth-quarter reporting season on Friday, when
Brookfield Properties BPO.TO posts its results.
 One of Manhattan's biggest landlords, Brookfield is
expected to report lower funds from operations -- a real estate
benchmark that strips out the distorting effects of
depreciation and other factors from earnings -- as the company
raised about $1 billion last summer and has yet to deploy it.
 The global credit crisis hit the real estate market hard,
particularly on rents and occupancy in the United States. The
U.S commercial real estate market is in its worst slump since
the early 1990s.
 But details of Brookfield's results are likely to show
steadiness because of its diversified portfolio and leases
timed to expire at wide intervals.
 "From an operational standpoint we're looking for flattish
results," said Mario Saric, a real estate analyst at Scotia
 "But what has benefited Brookfield and what I think will
continue to benefit Brookfield is that even though occupancies
have come down dramatically and rents are coming down,
Brookfield has a very small amount (of lease terms) expiring,"
Saric said.
 "As long as they don't experience a significant increase in
tenant bankruptcies, they should still produce relatively
stable cash flow."
 Brookfield's 75-million-square-foot portfolio includes the
World Financial Center in Manhattan, Brookfield Place in
Toronto, Bank of America Plaza in Los Angeles, and Bankers Hall
in Calgary, Alberta.
 Like Brookfield, Canadian real estate investment trusts are
also expected to see their funds from operations slip in the
fourth quarter, but investors are likely to look past the lower
results in favor of future opportunities.
 Occupancy rates will be down slightly from third quarter
for most property types. Apartment trusts, such as Boardwalk
REIT BEI_u.TO, will likely show stability, while
retail-focused REITs, like RioCan REI_u.TO, have held up
relatively well throughout the economic downturn.
 The REITs are sitting on more cash and liquidity that
generally has a low return on it, which dilutes results on a
per unit basis. The group has total liquidity of about C$4.4
billion ($4.2 billion), RBC analyst Neil Downey estimated in a
 Betting on an economic recovery, REITs have lined up to
raise capital to acquire commercial properties -- or even
entire portfolios -- from smaller rivals. [ID:nN19100261]
 Acquisitions are top of mind as investors look to see how
these amassed funds will be used.
 "I think the Street will be looking forward (past the
weaker fundamentals) with the primary focus being on
acquisitions and which REITs will be able to buy accretively to
drive growth to the bottom line," said BMO Capital Markets
analyst Karine MacIndoe.
 The following are fourth-quarter FFO per share or per unit
estimates for a selection of companies and trusts in the
Canadian property sector.
 Company              Street estimates (Q4/09 vs Q4/08)
 Brookfield BPO.TO   $0.32 vs  $0.49
 RioCan REI_u.TO    C$0.32 vs C$0.39
 H&R REIT HR_u.TO   C$0.35 vs C$0.31
 Boardwalk BEI_u.TO C$0.59 vs C$0.61
 Calloway CWT_u.TO  C$0.40 vs C$0.47
 Chartwell CSH_u.TO C$0.15 vs C$0.23
 Dundee REIT D_u.TO C$0.67 vs C$0.80
 Allied  AP_u.TO    C$0.41 vs C$0.42
 Crombie CRR_u.TO   C$0.30 vs C$0.36
 ($1=$1.06 Canadian)
 (Reporting by Ka Yan Ng in Toronto and Isheeta Sanghi in
Bangalore; editing by Rob Wilson)

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