* 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 Canada's biggest
office and retail landlords reported strong quarterly results
on Friday, boosted by acquisitions and long-term leasing
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
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
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.
(Editing by Peter Galloway)