Brookfield looks to go bargain hunting

Brookfield Properties Inc. says a third quarter profit has helped it amass a small war chest in order to pick up distressed commercial properties.

Brookfield, which owns more than 100 properties in a number of major North American cities, made $174 million, or 44 cents a share, in the latest July-to-September period. That was a marked improvement compared with the Toronto company's $3 million gain for the same quarter one year earlier.

Brookfield attributed almost three-quarters of the gain in the period to a one-time profit, worth $127 million, from the July sale of a 50 per cent interest in the TD Canada Trust tower located in downtown Toronto.

The company also absorbed an $8-million loss in the same quarter as a result of damage to its Houston buildings because of Hurricane Ike, which struck the southern U.S. earlier in the year.

For the third quarter, Brookfield posted revenue of $718 million, a rise of only four per cent compared with sales of $691 million one year earlier. The company has endured the negative effects of the U.S. subprime mortgage meltdown and the consequent economic slowdown throughout Canada and the United States.

The next year will probably be worse for developers than 2008. A survey conducted earlier in October for Pricewaterhousecoopers and the Urban Land Institute indicated commercial property values across the United States will continue to deteriorate. As a result, 2009 could be the worst year for the business property market since the Great Depression, the group said.

Three month chart for Brookfield Properties Corp.

The report estimated that the vacancy rate in many cities, such as Seattle, will grow higher than the current 10 per cent level, a situation that bodes ill for Brookfield's buildings.

Still, Brookfield said the company had accumulated some financial resources to buy devalued properties.

"With a well-leased portfolio and low near-term lease rollover exposure, Brookfield Properties is strongly positioned to maintain steady financial performance through the economic downturn. At the same time, we are working to generate additional liquidity in order to take advantage of opportunities that will undoubtedly arise in this market," said Ric Clark, Brookfield's president and chief executive officer.

Brookfield has approximately $200 million in cash and near-cash on its books currently. The company also has renewed $300 million in revolving credit financing.