We are pleased to report that 2006 was a productive year for Brookfield Properties. We achieved our financial and operational targets and have taken a number of steps aimed at positioning the company for continued growth going forward. Consistent with past years, and for the eighth year in a row, we saw our funds from operations (FFO) grow meaningfully. Our residential land development business had
another record year, contributing $144 million to our FFO, up 36% from 2005. In total, we generated FFO of $443 million or $1.87 per share, a 9% increase over 2005. In addition, our shareholders benefited from the continued strong performance of our
common shares during the year, realizing a $9.91
per share increase to $39.33 for a total return of 34%.
Last year in our letter to shareholders, we
outlined four principle objectives for the year:
leasing (lowering our overall vacancy and near-term rollover exposure); acquisitions (investing with joint venture partners in a fund format to leverage our returns); development (monetizing our development assets while building upon our development platform); and residential operations (supporting and expanding our residential operations, capitalizing
on the strong Alberta economy). During 2006,
we made meaningful progress in all of these areas
in addition to strengthening our balance sheet.
The following are a few of our accomplishments.
Leasing
Strong and improving economic conditions in
all of the cities in which we operate led to strong demand for office space during the year. Capitalizing on this, 2006 was a record year for us from a leasing standpoint. Overall, we leased 8 million square feet of space for the year, 5.1 million square feet on a same-property basis. In the process, we accomplished our two main leasing objectives: we increased our same-property year-end occupancy rate by 250 basis points to 97.1% and reduced our 2008 to 2010 lease rollover exposure by 850 basis points collectively
to 3.2%, 3.7% and 5.7% respectively.
A few of our notable leases for the year included an early renewal with the Federal Government of Canada for 926,000 square feet at Place de Ville in Ottawa, a new lease with EnCana Oil & Gas for 450,000 square feet at Republic Plaza in Denver, a 250,000 square |
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foot lease with KPMG to kick off development at Bay Adelaide Centre in Toronto, and a 1.267 million square foot lease with Chevron
at Four Allen Center in Houston, the largest lease in North America since 2000.
Acquisitions
On the heels of the successful launching of our
first Canadian Office Fund and its investment in
the O&Y portfolio in 2005, last year we set our sights
on accomplishing similar results with ourfirst U.S.
Office Fund. To that end, during 2006, we launched
and fully invested our first U.S. office fund in the
$7.6 billion acquisition of Trizec. This transaction
was completed in a partnership with the Blackstone Group with our fund owning 73% of the investment.
In keeping with our investment strategy, the Trizec portfolio comprises 29 million square feet of well-located, premier quality assets in high-growth, gateway cities driven by tenants in the financial services, government and energy sectors. In addition to expanding our presence in New York City and Washington, D.C., we entered two new markets, Houston and Los Angeles.
During the year, we also acquired One Bethesda Center and the TSA buildings in the greater Washington, D.C. area (708,000 square feet), Four Allen Center in Houston (1.3 million square feet), and the remaining 75% interest in Hudson's Bay Centre in Toronto (797,000 square feet). In total during 2006, we acquired interests in 62 new properties comprising 31 million square feet, practically doubling the size of our portfolio.
Development
Recognizing that acquisition asset pricing has exceeded replacement cost in many cases, we began 2006 with a potential commercial development
pipeline comprising seven projects and 8.1 million square feet and a goal to begin to monetize these
assets and to add to our development inventory.
During the year we began development at five sites totaling 2.8 million sq. ft. including Bay Adelaide Center in Toronto, Bankers Court in Calgary, 77 K Street in Washington, D.C., and with the Trizec acquisition, the Waterview Project in Rosslyn, Virginia as well
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