Brookfield Property Partners struggles amid the pandemic.
The mall owner, one of the largest in the U.S., released quarterly earnings Friday morning, widening its losses with another $135 million in the red. That’s on top of the $1.5 billion loss in the prior quarter. Company shares fell about 4 percent during the day’s trading session as a result.
More precisely, company funds from operations were $161 million for the three-month period ending Sept. 30, down from $324 million a year earlier. In the core retail division, the company’s funds from operations were $97 million, down from $201 million the same time last year. The $135 million loss compared with gains of $870 million during 2019’s third quarter.
Still, Brian Kingston, managing partner and Brookfield’s chief executive officer of real estate, said he is encouraged by the company’s progress.
“While there may be temporary setbacks as different regions reach different stages of recovery, we are confident that the worst of the economic shutdown is now behind us,” Kingston said in a statement. “Our staff has done an amazing job, preparing our buildings for safe reopening and each day it is gratifying to see more office workers, retailers, customers and visitors returning to our properties around the globe.”
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Like other nonessential businesses, Brookfield was forced to close its malls in mid-March as the coronavirus made its way around the globe. And with so many retailers suffering from losses of their own because of the shutdown, the landlord was only able to collect about 34 percent of rent due from its core retail portfolio last quarter.
Rent collections were an improvement in the third quarter — between 70 and 75 percent of the roughly 95 percent of retailers open, with numbers improving in November — Kingston told analysts on Friday’s conference call.
“Rent collection in our core office business has remained normal and earnings have begun to recover in our ancillary retail and parking operations as activity there has returned,” Kingston said. “While new leasing remains muted in North America, we have been encouraged by an increase in activity in markets, such as Asia, where office utilization rates and tenant activity have returned close to normal. We have strong conviction that here, too, workers will eventually return to the office as they did prior to the pandemic. The demographic forces that were driving increased white collar employment urbanization and demand for high-quality high amenity office buildings have not gone away; they are merely on pause temporarily.”
Kingston added that in-store traffic at Brookfield retail centers increased during the most recent quarter, between about 65 and 70 percent, compared with the same time last year.
“Tenant sales have similarly recovered and in certain segments are experiencing stronger sales versus this time last year,” he said. “The best performing categories were luxury, fashion and jewelry, with year-over-year sales growth between 36 and 13 percent, respectively.
“At the Miami Design District, for example, our high-street retail corridor, featuring 120 luxury brands, comparable sales for these retailers in the month of September was up 40 percent year-over-year,” Kingston continued. “Strong performance is not isolated to luxury, however, and sales for retailers with broad appeal, including Pandora and American Eagle Outfitters, were likewise growing.”
Still, other headwinds persist. Brookfield, which owns 173 retail locations, largely in the U.S., had an estimated $19 million loss from rent reductions. The continued impact of bankruptcies and the related cotenant claims, such as the J.C. Penney Co. Inc. bankruptcy, cost the firm another estimated $11 million. Fee income also declined by $12 million because of lower leasing volumes, property revenues and joint venture fees.
On top of the losses, watchdog firm Moody’s Investor Service lowered its rating on Brookfield in August. The following month, Brookfield said it was laying off about 20 percent of its retail division.
To help curb costs, Brookfield entered into a contract to sell its U.S. self-storage business for about $1.2 billion. The firm also has plans to sell 100 percent of an office building in London for 480 million British pounds, a 9 percent premium from the price Brookfield paid a year ago.
“This sale will generate a $125 million of net proceeds to [Brookfield],” Bryan Davis, managing partner and chief financial officer at Brookfield, said on the call.
In addition to retail, Brookfield’s portfolio, which is spread out across 30 countries, includes offices, residential dwellings, hotels and self-storage spaces.
On the call, Kingston said the pandemic and subsequent shutdown will ultimately benefit Brookfield, as the company seeks to restructure its overall operations.
“While there may be temporary setbacks as different regions reach different stages of recovery, we expect any closures in the future will be shorter and less severe than they were earlier in the year, and therefore, less disruptive to our overall business operations,” Kingston said.
“Many of the weaker balance sheets, or more challenged retailers, they have hit a wall and they’ve gone bankrupt, or they’ve restructured and worked through that,” he continued. “And so, we’ve taken those impairments. And I think what we’re left with now is a much stronger field of tenants, whose businesses have largely stabilized.
“The J.C. Penney transaction is part of that,” Kingston said. “And you know, it’s a good example to talk about how [Brookfield] will definitely benefit from that. As I mentioned, we have 99 J.C. Penney stores out of their 830 or so stores, and not one of [Brookfield’s locations] will be closing. And so that’s obviously great for [Brookfield]. So I think that having that capital available to invest in and stabilize some of these retailers — and there’s a number of others that are in various stages of discussions — I think it is a net positive for [Brookfield].”
Brookfield ended the quarter with $1.8 billion in cash and equivalents. Shares of Brookfield are down about 25 percent year-over-year.
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