UPDATE 2-Brookfield reports lower results, recovery in sight

* FFO/share $0.34 vs $0.38 year earlier

* EPS $0.08 vs $0.44 year earlier

* 2008 results included $127 mln gain (In U.S. dollars. Adds comments from conference call)

TORONTO, Oct 29 (Reuters) - Brookfield Properties (BPO.TO) (BPO.N), one of Manhattan's biggest landlords, said on Thursday its quarterly results ebbed, but it sees the North American real estate market taking a turn for the better soon.

The real estate company, whose 75-million-square-foot portfolio comprises interests in 108 properties in Canada and the United States, said key indicators including rising liquidity and stability in leasing volumes, all point to a gradual recovery next year.

"We expect continued softness and challenges for 2010 on the office side of our business, but 2010 would be a transitional year with gradual improvement in fundamentals as the year progresses," Ric Clark, Brookfield's chief executive said on a conference call with analysts.

The company, whose impressive real estate portfolio includes the World Financial Center in Manhattan, Brookfield Place in Toronto and Bankers Hall in Calgary, Alberta, has felt the effects of recession as companies closed and businesses trimmed staff.

The Manhattan office market vacancy rate in the third quarter rose to 11.1 percent alone, the highest in five years.

SLIGHTLY WEAKER RESULTS

For the third quarter Brookfield said it leased 693,000 square feet of space and completed 63,000 square feet of development leasing. Renewals represented 74 percent of the total with new leases representing the remainder, with average rents on leases rising 25 percent to $25 per square foot.

Overall, the company said its funds from operations slipped during the quarter compared with the previous year when it benefited from the sale of a Toronto office building.

The company said funds from operations dipped to $151 million, or 34 cents a share, from $152 million, or 38 cents a share, a year earlier.

Funds from operations are a benchmark measure in the real estate sector, aimed at removing the distorting effects of depreciation.

Net income fell to $38 million, or 8 cents a share, from $174 million, or 44 cents a share. Included in the 2008 results was a net gain of 32 cents per share on the sale of TD Canada Trust Tower in Toronto. ($1=$1.07 Canadian) (Reporting by Scott Anderson; Editing by Frank McGurty