Value Decline Slows At Brookfield, But Debt Costs Eat Up Funds

The rate of decline in Brookfield’s giant office portfolio slowed in the first quarter of 2023, but the cashflow it generated dropped significantly because of the sharp rise in borrowing costs. 

The like-for-like value of the core office portfolio owned by Brookfield Property Partners, the property division of Brookfield Corp., dropped by $231M in Q1 compared to an average quarterly decline of around $300M in 2022.

Brookfield's core office portfolio consists of 92M SF across 134 office assets in cities like New York, London and Berlin. Its value was $22.1B at the end of Q1. 

Funds from operations from the core office portfolio, a measure of cashflow used by real estate companies, dropped from $139M in the first quarter of 2022 to $17M. The drop was due to increased interest costs on its variable-rate debt. 

The occupancy rate of the office assets that are consolidated on its balance sheet dropped from 85.5% in December to 82.9% at the end of March, while net in-place rents dropped from $34.28 per SF to $33.26.

The company also saw the value of its retail portfolio drop by $26M, essentially remaining flat at $19.5B. FFO dropped over the quarter as well from $168M to $102M. Its retail portfolio consists of 110M SF across 109 malls and urban retail properties in the U.S.

Brookfield’s debt rose by $10B in the quarter to $68B, primarily because of a deal in which the division bought a big stake in a Brookfield-managed real estate opportunity fund from its parent company. 

The company said that 2% of that debt was made up of nonrecourse mortgages “where we have suspended contractual payments”. 

Brookfield is currently engaging in modification or restructuring discussions with the respective creditors, it said.

“These negotiations may, under certain circumstances, result in certain properties securing these loans being transferred to the lenders," the company reported. 

That equates to about $1.4B of debt. Brookfield has $16B of debt that matures this year and $13B that matures next year.