Share buyback boosts Brookfield Office Properties: Scotia
10:14 AM, E.T. | September 30, 2011Real Estate
Brookfield Office Properties (BPO-T) is taking advantage of its undervalued shares by buying back its own stock, according to a report by Mario Saric at Scotia Capital.
Saric says Brookfield’s implied cap rate -- essentially the yield on its equity -- is significantly higher than its peers and the company is picking up its own shares at a discount.
“With an implied cap rate (7.2%) exceeding private market cap rates (~5%-6%), BPO is buying back shares for the first time since 2008,” he said in a note to clients.
Brookfield Office Properties has repurchased 780,000 shares so far at average price of about $15.52 US. Saric believes the market is unduly punishing the company’s stock because of concerns about the U.S. labour market, particularly in the financial sector.
“Overall, while we acknowledge leasing velocity may decelerate should U.S. financial firms continue to shed jobs, we believe BPO’s share price reflects excessive NOI [net operating income] erosion…with positive leasing announcements remaining the most important share price catalyst, in our view.”
“We recommend BPO to more risk-tolerant value investors seeking to play a gradual recovery in the U.S. employment picture,” Saric said.
Scotia Capital has a ‘sector outperform’ rating on the stock and a 12-month price target of $20.