S&P Mulls Downgrading Brookfield Property Partners To Junk Status, Citing Debt

Courtesy of Colliers
Ey Plaza At 725 S. Figueroa St.

S&P Global Ratings put Brookfield Property Partners on a negative watch, meaning the ratings agency might downgrade the real estate giant to junk status, citing its “substantial” maturing debt amid high interest rates and downward pressure on property values.

“While we acknowledge that BPY's sizable liquidity position and consistent execution of asset sales mitigate the risk of the company not being able to pay its fixed charges over the near term, BPY has one of the weakest financial risk profiles within our North America real estate coverage, given elevated leverage and thin interest coverage,” S&P said in a statement.

“This designation relates to a specific entity and has no impact on either the pricing or ability of Brookfield to access the real estate capital markets,” a Brookfield spokesperson told the Financial Post.

Brookfield Property Partners, the commercial property arm of Canadian asset manager Brookfield Corp., specializes in Class-A offices and malls in major U.S. markets, with about $130B in total assets. More than two years ago, S&P downgraded Brookfield Property Partners to BBB-, one step above junk.

This year, Brookfield Property Partners defaulted on loans associated with office buildings in New York, Los Angeles and Washington, D.C., along with a major San Francisco mall. It has suspended payments on about 3% of its contractual obligations on nonrecourse mortgage debt, the Financial Post reported.

Brookfield Property Partners' net income in 2022 came in at $996M, down $2.5B from the $3.5B net income it posted in 2021, mainly due to declines in the value of its assets. During the first six months of this year, the company lost $852M, a reversal from the $2.2B gain it posted in the same period in 2022, according to a second-quarter Securities and Exchange Commission filing.

Funds from operations for its core office properties came in at $24M during the first half of 2023, about 10% of the $234M in the same period a year earlier. Core retail FFO also slipped from $356M in the first half of 2022 to $178M during the first half of 2023.

Brookfield Property Partners' stock ticked up 1.75% on Monday morning but is down about 23.5% from last year.

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