TORONTO, Feb. 5 /PRNewswire/ -- Standard & Poor's today assigned its
triple-'B' issuer credit rating to Brookfield Properties Corp. The outlook is
stable.
The issuer credit rating reflects Brookfield's strong asset quality,
long-term leases to good quality tenants, a debt maturity schedule that
matches the long-term nature of the lease schedule, and adequate financial
flexibility. Although Brookfield went public in 1997, the largest
shareholder, Brascan Corp. (A-/Stable/A-2), retains a 48% equity stake. These
credit strengths are mitigated by a high degree of concentration in the New
York, N.Y., market; a more highly levered balance sheet compared with those of
its peers; moderate coverage levels; and an encumbered commercial property
portfolio.
The rating on any unsecured debt to be issued by Brookfield in the future
would be rated one notch lower than the issuer credit rating, due to the very
high level of existing secured debt. The one notch difference addresses the
general ranking of each respective debt type's recovery prospects. The
overall default risk remains reflected in the triple-'B' issuer credit rating
on the company.
Brookfield has a portfolio of 50 commercial properties of above-average
asset quality in largely central business district locations that contain more
than 45 million square feet of space. Brookfield also operates a real estate
service business and develops master planned residential communities.
Although Brookfield is a Canadian domiciled corporation, the company is
headquartered in New York, N.Y., and an increasing proportion of funds from
operations (about 70%) are generated from properties located in the U.S. The
key markets where the company is active are New York, N.Y.; Toronto, Ont.;
Calgary, Alta.; Boston, Mass.; Denver, Colo.; and Minneapolis, Minn.
Brookfield's portfolio is 97% leased at rents, which are currently about
25% below market, although this healthy cushion could be eroded if the current
recession is deeper or lengthier than currently expected. There is also some
concentration to the portfolio, since 24 properties represent the bulk of
total book value. Nevertheless, the overall lease maturity schedule is
manageable with roughly 4% of office space expiring each year until 2005 and
65% of the space expiring beyond 2007. The company's average lease term is
10 years, with New York, N.Y.-based tenants at 11 years to 14 years. The
financial policy of Brookfield has been to use property level debt that is
nonrecourse to the company and at fixed rates. To this end, the company has
no corporate level debt with the exception of the US$226 million unsecured
line of credit. Cash flow protection is moderate but manageable considering
the C-corp. status and the high level of regular debt amortization. Debt
service coverage is 1.7 times for the nine-month period ended Sept. 30, 2001.
The capital structure is more highly leveraged at 64% debt-to-book
capitalization than comparable U.S. REITs and reflects the company's strategy
of property-based lending and the C-corp. structure. The debt maturity
schedule has only one major property mortgage that becomes due before 2006.
Financial flexibility appears adequate, as Brookfield has been successful at
generating cash through refinancings, property sales, and cash from
operations, and also has a comparatively low 17% dividend payout.
OUTLOOK: STABLE
In 2001, the North American office market softened materially and fairly
quickly, and is not expected to rebound in the coming year. Nonetheless,
Brookfield's portfolio is competitively well positioned to withstand the
currently more challenging operating environment due to its favorable lease
profile, and strong asset quality and credit tenants. In addition, although
Brookfield is especially levered against the New York market, the company has
a very small amount of lease rollovers in the New York portfolio until 2005,
when 6% of square footage expires. The office market in general is subject to
wide cyclical swings; however, the largely fixed-rate debt structure, the
ability to retain cash flow, and the long-term nature of the in-place leases
should provide for relatively stable debt protection measures.
SOURCE Standard & Poor's
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Related links:
http://www.standardandpoors.com/ratings
CONTACT:
Ronald Charbon, +1-416-507-2516, or Jeanne M.
Sarda, +1-212-438-2598, both of Standard & Poor's
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