Tuesday, August 30, 2011

Brookfield Office Properties

I do not own this stock (TSX-BPO, NYSE:BPO). One of the problems with this stock for Canadians is that dividends are declared in US$. This means that dividends from this stock can fluctuate with the difference between US and CDN currency.

This company has not changed its dividend since 2008. However for Canadians, the dividends would have decreased between 2009 and 2010 by just over 5%. Over the past 5 and 10 years, dividends, in CDN$, has increased at the rate of 2% and 13% per year, respectively. The 10 year increase is good; the 5 year is probably about the inflation rate.

Because our currency has been increasing against the US currency, this stock has done better in US$ terms than in CDN$ terms. However, even in US$ terms, this stock has not performed well in a lot of areas, especially over the past 5 years. For example, Revenues and Revenues per Share have gone down over the past 5 and 10 year no matter what currency you are looking at.

Although a number of analyst expect revenue to go up this year and next, revenue over the past 5 and 10 years has gone down by 3% and 5% over the past 5 and 10 years. Revenue per Share has gone down at the rate of 10% and 8% over the past 5 and 10 years. This is in US$ terms. Both these measures have done worse in CDN$ terms.

As far as total return goes, both in US$ and CDN$ this stock has had positive 10 years returns at around 7% for CDN$ and 11% for US$. However, there is no positive returns in CDN$ or US$ over the past 5 years. Canadians would have lost around 3% per year, and the Americans would have about broken even.

This stock does have some good points. In both US$ and CDN$ terms, earnings have been increasing. In CDN$, the EPS increases over the past 5 and 10 years is at the rate of 38% and 16%. Both are very good. I still worry about revenue, because you cannot indefinitely increase earnings without increasing revenues.

In terms of cash flow, the 5 year increase initially looks good as it shows that in CDN$ it has increased at the rate of 17% per year. However, the Cash Flow per share was unusually low 5 years ago, so this is not as good as it looks. The 10 year Cash flow is lower by almost 8% per year.

Book value has increase in CDN$ terms over the past 5 and 10 years by 20% and 8%. However, when they switched to the new accounting rules the Book Value increased by 65%. So, most of this great gain is because of the new accounting rules.

The other thing that improved with the new accounts rules was the debt ratios. They have gone from just ok to very good. The current Asset/Liability Ratio is at 2.14 compared to a 5 year median of 1.26. The Leverage Ratio is currently at 2.37 compared to a 5 year median of 4.53. The current Asset/Debt Ratio is 1.11 compared to a 5 year median of 3.29. It is hard to determine whether or not this is a good thing. This may be the reason that this company switched to the new rules before they had to.

The Return on Equity is also better under the new accountings rules. The ROE for 2009 was 7% with a 5 year median ROE of 10%. The current ROE, which is the one covering the last 12 months, is 26% with a 5 year median of 18.9%.

This is a property management company, and as I already have enough in REITs, I would not be investing in this company. In any event, I am not sure I like the characteristics of this company. Tomorrow, I will look at what the analysts say and use my spreadsheet to review the current stock price.

Brookfield Properties is a leading North American commercial real estate company that invests in premier-quality office properties in high-growth markets driven by financial service, government, and energy tenants. The portfolio is composed of office properties in 12 top U.S. and Canadian markets. Its web site is here Brookfield Office. See my spreadsheet at bpo.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

1 comment:

  1. Nice post Susan. I'll be putting this one in my round-up this week :)

    Are you worried about currency risk with your investments? I don't mind companies that pay in $USD since if I'm holding these guys for the long run, things will eventually even-out in the wash. That is my take but you have more experience than I do in this area.

    Should I be worried?