Just days after making an $81 million bid to save tapped-out retailer Forever 21, company executives at Brookfield Property Partners think the worst of the bankruptcy bloodbath is behind them.
“We had 3.5 million square feet of closures due to bankruptcies,” last year, Brookfield CEO Brian Kingston said on the company’s fourth-quarter earnings call Wednesday.
“It’s difficult to say in January how the year will pan out, but it feels as though the holiday season was pretty good,” he added. “Our expectation is that 2019 was the peak for bankruptcies and 2020 will get a little better.”
Brookfield over the weekend made a bid to purchase Forever 21 for a bargain price of $81 million with partners Simon Property Group and Authentic Brands Group. Brookfield and Simon are two of Forever 21’s largest landlords and unsecured creditors.
Brookfield has meanwhile doubled down on its acquisitions of malls, buying out its partner’s interests in four mall joint-ventures. On the firm’s strategy for malls, Kingston said BPY plans to continue “mall-repositioning and densification in order to unlock value.”
Sandeep Mathrani
Brookfield’s former malls chief, Sandeep Mathrani, left the company earlier last month and just recently agreed to be the new CEO of WeWork.
As for Brookfield, the company shows no sign of slowing down its big bets on the retail and office sectors.
BPY reported net income of $1.5 billion for the three-month period ending in December 2019, compared with $858 million for the same period in 2018, executives announced on the call. Also in the fourth quarter, the firm made $459 million by selling assets at higher prices than it originally purchased them for, with realized gains overall totalling $1.5 billion in 2019.
Net income was slightly down for the year, at $3.2 billion compared with $3.65 billion in 2018.
In the fourth quarter, the firm completed $1.1 billion of gross asset dispositions. Topping the list of assets the firm shed were “various U.S. multifamily assets for net proceeds of $320 million.”
“We had realized gains of $80 million this quarter from the sale of a multifamily investment where we earned an 18 percent internal rate of return through our first real estate investment fund,” Kingston said.
The first of Brookfield’s Property Partners Limited Partnership funds, BSREP I, totaled $4.4 billion. Now in its 8th year, BPY has a 31 percent interest in the fund, which has a projected return of 24 percent gross internal rate of return and a 2.6x multiple of capital. Brookfield also has two successor funds, BSREP II and III, which have amassed $9 billion and $15 billion, respectively.
In the fourth quarter, BPY also purchased 3.7 million units of its own stock at an average price of $18.84 per unit, bringing the 2019 unit buy-back total to 27.3 units for the year. Kingston said he expected the firm to continue to employ the strategy going forward.
“Unit buy-backs are part of our normal strategy,” Kingston said. “Where shares trade today, when you adjust for the risk, it’s a very attractive place for us to put capital.”
The firm also announced it would appoint Doug McGregor to its board, starting in March. McGregor is widely viewed as Canada’s top investment banker. In 2018, as head of Royal Bank of Canada, McGregor advocated for ramping up the bank’s services to private equity customers, including Brookfield, and called those firms’ capital raising “unbelievable” at the time.
Brookfield became New York City’s largest commercial landlord after its $6.8 billion acquisition of Forest City Realty Trust in 2018. Now, the firm has about 26 million square feet of space across 25 office properties, as well as about 3 million square feet of retail space and 6,500 rental apartments in the city.