Analysts still baffled by Brookfield’s big bet on malls

Brookfield Property REIT’s shares have dropped by 13 percent since its purchase of General Growth

Dec.December 23, 2019 04:30 PM
Brookfield CEO Brian Kingston and Garden State Plaza in New Jersey (Credit: Brookfield, Westfield Garden State)

Brookfield CEO Brian Kingston and Garden State Plaza in New Jersey (Credit: Brookfield, Westfield Garden State)

Brookfield Asset Management’s massive investment in malls is looking worse than ever to some observers.

Since its nearly $15 billion acquisition of General Growth Properties in 2018, Brookfield Property Real Estate Investment Trust, a publicly traded vehicle formed after the purchase, has seen its shares decline by 13 percent, the Wall Street Journal reported. The second-largest mall owner in the country, GGP’s portfolio includes 125 buildings — mostly malls.

According to an analysis by Green Street Advisors, Brookfield’s assigned valuation of the GGP portfolio suggests a cap rate in line with malls rated A+ or higher, which may be out of step with the reality of the holdings, more than half of which Green Street rated at B+ or lower.

Brookfield disagreed with Green Street’s assessment, citing its tenants’ high sales per square foot, and defended its investment in shopping malls. “This is part of our strategy in that we’re contrarian investors,” said Brian Kingston, chief executive of Brookfield Property Partners. “This is what it always feels like.”

According to the Journal, Brookfield approached prior institutional investors about buying stakes in other malls, but didn’t get any bites. The investors were concerned about renovation costs and further store closures, the paper reported.

The retail sector has continued its decline since Brookfield’s historic investment, with major tenants Sears Holdings Corp. and Forever 21 among the growing list of retailers who filed for bankruptcy and announced plans to close stores, while J.C. Penney Co., Gap Inc. and Macy’s Inc. saw their shares decline after dismal earnings reports. Meanwhile, investors are requesting to pull $5 billion in commitments to Trumbull Property Fund, a $20 billion investment fund, after it wrote down the value of its retail assets.

Other institutional investors, including Blackstone, have avoided the asset class altogether, instead making bets on logistics space.

Brookfield, though, isn’t shy about experimenting with its retail properties. It bought a series of retail storefronts on Bleecker Street in Manhattan in 2018 for $31.5 million and has been trying new strategies. [WSJ] — Georgia Kromrei

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