WRAPUP 2-Acquisitions brighten Canada property firm results

Fri Aug 5, 2011 2:23pm EDT

* Brookfield Office leasing up 23 pct in Q2

* Brookfield, RioCan funds from operations rise

* RioCan ups acquisition budget to C$800 mln

* Slowing global economy could hold back dealmaking

* Brookfield shares, RioCan units weaken in market tumble (Adds details and comments. In U.S. dollars, unless noted)

By Ka Yan Ng and Amruta Sabnis

TORONTO/BANGALORE, Aug 5 (Reuters) - Canada's biggest office and retail landlords reported strong quarterly results on Friday, boosted by acquisitions and long-term leasing renewals.

Brookfield Office Properties BPO.NBPO.TO and RioCan Real Estate Investment Trust (REI_u.TO) said funds from operations, the most closely watched performance measure for property companies, rose in the three months to the end of June. [ID:nL3E7J52TI] [ID:nL3E7J525O]

Canada's resilient economy, rising rents and easy borrowing are fueling a buying spree among real estate investment trusts, highlighted last month by the largest office property deal ever by a Canadian REIT. [ID:nN1E76L1F2]

Analysts warned, however, that the trend could slow if a flagging global economy makes it more difficult to raise capital and complete deals.

"We've had a ton of acquisition activity and capital-raising going on over the last two years," said Karine Macindoe, an analyst at BMO Capital Markets.

"This market environment is probably going to slow some of that down because ... share prices are far more volatile and declining."

STEADY EXPANSION

The second quarter revealed few signs of weakness. Brookfield, a major office landlord in Manhattan and other North American cities, reported a 23 percent jump in leasing activity. It leased 1.6 million square feet of space, compared with 1.3 million square feet leased a year earlier.

Even though global stock markets have been sent reeling in the past eight sessions on fears of another recession, the industry remained optimistic, with Brookfield looking at a record year.

Ric Clark, Brookfield's chief executive, said the company was in serious talks with prospective tenants for about 7 million square feet of office space.

"Although we're feeling pretty good about converting these discussions to leases, some could well drift into next year and might not end up in this year's stats," he said on a conference call with analysts.

"But I would just point out that we're on track, we believe, to hit likely our best leasing year ever."

Brookfield's FFO rose to $166 million, or 30 Canadian cents a share, from $156 million, or 30 Canadian cents, a year earlier. FFO strips out the effects of depreciation and other factors from the earnings of property companies, giving a more telling quarterly reading.

RioCan REIT, Canada's largest landlord of retail space, also turned in a strong performance. FFO rose 12 percent to C$93 million, or 36 Canadian cents a unit, from C$83 million, or 34 Canadian cents, a year earlier.

RioCan has expanded its portfolio in Canada steadily, while looking for opportunities for growth in the United States for more than a year.

Chief Executive Edward Sonshine told analysts on a conference call that it would be "quite achievable" to hit an acquisition budget of C$800 million "or a bit higher" this year. Previously, the REIT had earmarked C$600 million.

RioCan renewed 1 million square feet during the quarter at an average rent increase of 13.9 percent, or C$1.99 per square foot. It also added five properties in the quarter.

In July, Dundee Real Estate Investment Trust (D_u.TO) said it is buying 29 properties from U.S. private equity giant Blackstone Group for C$831.8 million. It was the largest deal ever for a Canadian REIT.

RioCan's units were down 0.24 percent at C$24.84 on the Toronto Stock Exchange on Friday afternoon. Brookfield shares slid 2.26 percent to C$16.47 on the Toronto Stock Exchange, and its New York-listed shares fell 0.9 percent to $16.87.

($1=$0.98 Canadian) (Editing by Peter Galloway)

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