February 25, 2005

Calgary boom nudges O&Y REIT profit into black

TORONTO

O&Y Real Estate Investment Trust, a major Canadian commercial property fund which began courting buyers last week, says a hot real estate market in Calgary helped boost its fourth-quarter profit to $7.9 million from $7.2 million a year earlier.

Tuesday’s earnings report was overshadowed by speculation over prospective buyers for O&Y REIT and controlling unitholder O&Y Properties Corp., whose total enterprise value is estimated at more than $2 billion.

“I can’t say a whole heck of a lot; it is still very early,” CEO Philip Reichmann said during a conference call, divulging only there is interest from pension funds, offshore investors and real estate fund managers.

“We are still seeing interest from just about everywhere that you’d think,” he said. “It is a wide range of participants and it is a good solid list, and it is only a week into the process.”

While there is no specified deadline for purchase proposals, Reichmann suggested that qualified players not delay.

“It is a bit of a moving target,” he said.

Rags Davloor, O&Y REIT’s chief financial officer, said fourth-quarter net income amounted to 13 cents per unit, compared with 17 cents a year ago.

“Our strongest market continues to be Calgary, which has switched from a tenant’s market to a landlord’s market,” Davloor said.

“Other markets also appear to be improving, with the exception of Winnipeg, which continues to be slow.”

But burgeoning occupancy and leasing rates weren’t enough to keep the company’s annual profit from declining.

Full-year earnings dropped to $26.3 million or 50 cents per unit, from $36.3 million or 94 cents per unit. The decline was attributed to new accounting rules relating to depreciation of rental properties and to costs associated with the internalization of property management.

“O&Y REIT had a successful year, with strong leasing across the portfolio and significant property acquisitions, as well as the acquisition of O&Y Enterprise,” Reichmann added.

“In fact, it is the successes achieved over the last four years that, in part, led to the decision to launch a process to sell O&Y REIT and surface the embedded value for unitholders.”

After year-end, O&Y REIT acquired the Maritime Life Tower, a 20-storey office tower in downtown Toronto, from O&Y Properties for about $130 million.

Looking forward to 2005, Davloor said the company expects rents on new leasing to be in the range of three to five per cent higher than rates on expiry.

The Canadian Press

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