Brookfield Office Starts 2013 with Strong Q1

NEW YORK CITY-In keeping with what CEO Dennis Friedrich calls “a new phase of growth,” Brookfield Office Properties on Friday reported strong quarterly results for the three months that ended March 31. Friedrich's comment referred specifically to the development under way at BPO's Manhattan West project in New York City and the second phase of Bay Adelaide Centre in Toronto, but the financials also reflected an uptick, with year-over-year gains in funds from operations, commercial property net income and same-store NOI during Q1.

FFO for Q1 was $189 million or $0.33 per diluted common share, up from $154 million or $0.27 per diluted common share the year prior. Commercial property net operating income for the first quarter increased to $349 million, compared with $312 million in Q1 2012, while same property NOI rose 2% year over year.

Also on the rise were rents, with the average net at $33.43 per square foot compared to expiring rents during Q1. The REIT leased 1.3 million square feet of space during the quarter; leading the way in terms of BOP markets was Calgary at 282,000 square feet. Subsequent to Q1, BOP renewed the Transportation Safety Administration's 546,000-square-foot lease at 601 and 701 S. 12th St. in Arlington, VA, extending by four years an occupancy that was set to expire in 2014.

Another post-Q1 transaction for BOP was the merger agreement with MPG Office Trust, in which a newly formed fund, DTLA Holdings, controlled by BPO will acquire MPG. DTLA Holdings will own both BPO's existing downtown Los Angeles office assets and all of the assets of Los Angeles-based MPG.

For BPO, the merger more than doubles its downtown L.A. presence to seven office towers totaling 8.3 million square feet, up from a trio of towers totaling 3.6 million square feet. In terms of square footage, it puts L.A. ahead of Houston as BOP's third largest US market, with New York City and the Washington, DC metro area coming in first and second, respectively.

The deal also represents what the Wall Street Journal called “a big bet” on a market that has experienced  “lackluster demand” in recent years. “While parts of Los Angeles—particularly areas close to the beach like Santa Monica—have seen in influx of technology and entertainment companies, downtown Los Angeles has been struggling in terms of office demand,” the WSJ reported Thursday.