* Plans to convert into a pure-play office company
* To enter Australian market, exit homes
* FFO $0.40/shr vs $0.32/shr last year
* Leased 1.3 mln sq feet in second quarter
* Shares fall more than 3 pct in Toronto, New York (Adds details, commentary. In U.S. dollars unless noted)
By Ka Yan Ng and Isheeta Sanghi
OTTAWA/BANGALORE, July 30 (Reuters) - Brookfield Properties Corp BPO.TO, one of Manhattan's biggest landlords, posted a 70 percent rise in funds from operations on Friday, and said it plans to transform itself into a pure-play office property company.
As part of the conversion, Brookfield plans to acquire 8 million square feet of space in 16 office properties in Australia from controlling shareholder Brookfield Asset Management Inc (BAMa.TO) for A$1.6 billion ($1.44 billion).
The second part of the plan is to exit the residential land and housing business, which has grown substantially over the years, particularly in Western Canada. The property company said it plans to start discussions with Brookfield Homes Corp BHS.N about a possible merger of its residential business with Brookfield Homes.
Ric Clark, chief executive at Brookfield Properties, described the transformation as a whole as "very profitable".
"These transactions collectively will position Brookfield Properties as the only publicly listed Class A office company that has a presence in four of the world's most developed countries," he told analysts on a conference call.
The stock failed to react positively to the news, sliding 3.55 percent to C$15.47 in Toronto, and down 3.3 percent to $15.04 in New York.
The Australian office properties, which Brookfield said it has been studying for a year, are attractive because they are compatible with the company's existing focus on tenants in the financial services, resource and government sectors. The offices are located in Sydney, Melbourne and Perth.
Toronto-based Brookfield Properties said it will fund the deal from its available liquidity of $1.3 billion and from a $750 million subordinate bridge acquisition facility from Brookfield Asset.
To reflect its repositioning, Brookfield Properties said it will rename itself Brookfield Office Properties. Its ticker symbols remain the same in Toronto and New York.
The company said funds from operations for the second quarter rose to $209 million, or 40 cents per share, from $123 million, or 32 cents per share, last year.
Funds from operations is a property sector measure that strips out the effects of depreciation and other factors from earnings.
Brookfield said the results included a realized gain of $53 million, or 10 cents a share.
In the latest quarter, Brookfield said it leased 1.3 million square feet of space, up from 750,000 square feet leased in the year-before quarter. Its managed portfolio occupancy rate finished the quarter at 94.8 percent.
Clark said the company was in "serious discussions" on leasing more than 4.3 million square feet of space, and could potentially top 2008's overall completed leasing of 6.4 mln square feet by yearend.
"Although it's a little bit early to say this with complete confidence," he added.
Brookfield operates in several high-profile U.S. markets, including Manhattan, with buildings such as the World Financial Center. A large chunk of its revenue comes from New York, one of the key cities in its 70 million-square-foot portfolio.
Clark said New York, Washington, and Toronto appear to be in full recovery mode supported by economic fundamentals.
$1=$1.03 Canadian Reporting by Ka Yan Ng in Ottawa and Isheeta Sanghi in Bangalore; Editing by Prem Udayabhanu and Peter Galloway