Brookfield Properties' Valuation Cut Leads to Downgrade of Brookfield Asset Management

TD Newcrest analysts Linda Ezergailis and Sam Damiani formed a tag team on Monday that has resulted in a downgrade of Brookfield Asset Management Inc. (BAM).

Ms. Ezergailis reduced her rating on BAM from "buy" to "hold," and lowered her target price from C$18 to C$17, after incorporatng colleague Mr. Damiani's reduced valuation for Brookfield Properties Corp. (BPO), a major investment of Brookfield Asset Management.

Ms. Ezergailis noted to clients in a report:

Based on statistics recently released on the economic and real estate condition of the U.S. and of Canada, Mr. Damiani has adjusted the valuation of Brookfield Properties.

In general, demand for offices and residential spaces have softened, fuelled by lower economic activity, higher unemployment rates and tighter credit lending across a large and widespread range of industry sectors.

In a separate note, Mr. Damiani explained to clients that he was lowering his valuation on Brookfield Properties because of higher office vacancies and "faster uplift in rent rates for 2009-2010."

He wrote:

The resulting [net operating incomes] prompted us to raise the capitalization rates on selected properties in Brookfield's portfolio. For both [2009 and 2010] we have decreased our forecasts for residential NOI to C$90-million per year, down 31% from our initial forecast of C$131-million per year.

Mr. Damiani reduced his price target from C$12 to C$9 and left his "hold" rating unchanged.