Brookfield Takes Property ArmPrivate in 6.5 billion deal – a story of real estate struggle
Updated: Apr 5, 2021
In the heart of ongoing deal activity from the first quarter of 2021, the property sector was not lagging. According to the Canadian alternative-asset manager Brookfield Asset Management Inc., the company managed to raise $6.5 billion to acquire shares of the Brookfield Property Partners LP, consolidating its real estate arm with the rest of the business. The acquisition is going to be financed with a mix of 50% cash, 42% Brookfield Class A shares, and the remainder in the form of 8% BPY preferred units.
Brookfield Property Partners owns, manages and develops some of the largest portfolios of real estate globally, having $88 billion in total assets in December last year. The skylines of the most dynamic and resilient cities such as New York, Los Angeles or London are represented with the most iconic properties belonging to the company. Long-term developments range from office and retail to multi-family and mixed-use. One of the largest developments of the Brookfield Property LP is represented by New York’s Manhattan West, a 1.9-million-square-foot office tower and more than 200,000 square feet of dynamic retail amenities. One of the characteristics of real estate companies is that unlocking returns for shareholders can take years. Therefore real estate firms require stable operating cash flows allowing them to access the long-term financing necessary to complete the projects.
Brookfield Property Partners was severely hit by the pandemic by bringing down shares 21% after a reported $2 billion loss. A widespread switch to remote working and stay-at-home orders impacted the firm’s operating cashflows. At the same time, the company is one of the biggest mall owners in the USA. In the 2018 merger with Growth Property Partners, it added more than 100 malls to its portfolio. Since then, the company was consistently trading at a discount to the underlying value of assets. Uncertainty over the severity of issues with rental collections in its retail properties and lagging foot traffic was rubbing salt into the wounds. Therefore, the deal proposing a 26% premium over the previous share price was a necessary step for both companies, allowing for “a greater optionality in how we manage our portfolio of high-quality real estate assets”, said in a statement Nick Goodman, the Chief Financial Officer of the Brookfield Asset Management.
Since the government enforced lockdowns, US retail real estate companies were struggling. Especially those with now closed shopping mall centres. Return to normal is not as certain anymore. Consumers are getting used to e-commerce as a quicker and more convenient alternative to conventional shopping. This leads to deals such as one of the Brookfield Property Partners LP. Despite the deal activity cooling down after the first quarter of 2021, we might expect further consolidations in the retail real estate sector.
Source: Financial Times