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Brookfield Sees $825M Wiped From Value Of Office Portfolio, But Shows Debt Market Is Open

Brookfield’s property division saw the net value of its office portfolio drop by $825M last year, due mainly to the impact of rising cap rates. But it also managed to raise new debt recently in spite of the volatility in financing markets. 

The Canary Wharf estate in east London

Brookfield Property Partners, the division that owns Brookfield’s office and retail properties as well as stakes in its real estate opportunity funds, said in full-year results that income from its portfolio increased slightly, though the value of its office and retail holdings dropped.

The company had a total of $113B in assets at the end of 2022, including $66B of office and retail commercial properties, $20B of stakes in Brookfield funds and a disparate mix of hospitality properties and financial assets. The portfolio has $58B of debt secured against it.

Funds from operations, a measure of profitability for real estate owners, was $586M, up from $578M in 2021. That came as income from its portfolio remained resilient — in fact, FFO from its retail business rose by $176M as the market improved for retail owners. 

The company’s net income was $996M, down $2.5B from the $3.5B net income in 2021 due to declines in the value of its assets. 

Its core office portfolio comprises 132 assets totalling 92M SF, including famous schemes like Manhattan West in New York City and Canary Wharf in London. That portfolio fell in value by close to 10%, from $24.6B to $22.1B, with a net $825M of that coming from “discount rate expansion to reflect the current macroeconomic environment”, Brookfield said. 

For properties it kept for the whole year, occupancy dropped from 86.1% to $84.7%, while rents actually rose slightly, from $32.11 per SF to $32.53 per SF. 

Brookfield Property Partners' core retail portfolio consists of 110M SF across 109 malls and urban retail properties across the U.S. The value of the portfolio rose from $19B to $19.4B, but some of that came from Brookfield buying stakes off JV partners.

The actual value of its retail assets dropped by $259B, again because of cap rate expansion. The portfolio’s occupancy rose from 92.4 to 93%.

Of the company’s $58B of debt, $38.8B is secured against assets. Of its secured debt, $13.4B is due to mature this year, while $10.9B matures next year. The company said it has suspended repayments on 2% of its debt obligations, totalling more than $1B. 

“[We] are currently engaging in modification or restructuring discussions with the respective creditors,” the company said. “We are generally seeking relief given the circumstances resulting from the current economic slowdown, and may or may not be successful with these negotiations. If we are unsuccessful, it is possible that certain properties securing these loans could be transferred to the lenders.”