TORONTO/BANGALORE - Canada’s commercial real estate sector is set to see a dip in year-over-year funds from operations, largely as a result of recent capital raisings and softer property conditions.

Owners of office, retail, industrial and residential space begin the fourth-quarter reporting season Friday, when Brookfield Properties posts its results.

One of Manhattan’s biggest landlords, Brookfield is expected to report lower funds from operations — a real estate benchmark that strips out the distorting effects of depreciation and other factors from earnings — as the company raised about $1 billion last summer and has yet to deploy it.

The global credit crisis hit the real estate market hard, particularly on rents and occupancy in the United States. The U.S commercial real estate market is in its worst slump since the early 1990s.

But details of Brookfield’s results are likely to show steadiness because of its diversified portfolio and leases timed to expire at wide intervals.

“From an operational standpoint we’re looking for flattish results,” said Mario Saric, a real estate analyst at Scotia Capital.

“But what has benefited Brookfield and what I think will continue to benefit Brookfield is that even though occupancies have come down dramatically and rents are coming down, Brookfield has a very small amount (of lease terms) expiring,” Saric said.

“As long as they don’t experience a significant increase in tenant bankruptcies, they should still produce relatively stable cash flow.”

Brookfield’s 75-million-square-foot portfolio includes the World Financial Center in Manhattan, Brookfield Place in Toronto, Bank of America Plaza in Los Angeles, and Bankers Hall in Calgary.

Like Brookfield, Canadian real estate investment trusts are also expected to see their funds from operations slip in the fourth quarter, but investors are likely to look past the lower results in favour of future opportunities.

Occupancy rates will be down slightly from third quarter for most property types. Apartment trusts, such as Boardwalk REIT, will likely show stability, while retail-focused REITs, like RioCan, have held up relatively well throughout the economic downturn.

The REITs are sitting on more cash and liquidity that generally has a low return on it, which dilutes results on a per unit basis. The group has total liquidity of about $4.4 billion, RBC analyst Neil Downey estimated in a note.

Betting on an economic recovery, REITs have lined up to raise capital to acquire commercial properties — or even entire portfolios — from smaller rivals.

Acquisitions are top of mind as investors look to see how these amassed funds will be used.

“I think the Street will be looking forward (past the weaker fundamentals) with the primary focus being on acquisitions and which REITs will be able to buy accretively to drive growth to the bottom line,” said BMO Capital Markets analyst Karine MacIndoe.