Brookfield Property Partners L.P. — 2022 Form 20-F
Reporting period: Fiscal year ended December 31, 2022; the filing is an annual report, not a standalone fourth-quarter report. Financial statements are prepared under IFRS and presented in U.S. dollars. BPY owns and operates global office, retail, hospitality and other real estate through the Core Office, Core Retail and LP Investments segments. Brookfield Corporation owns all BPY LP Units; those units are no longer publicly traded.
Financial performance and position
| Metric | 2022 | 2021 | Change or context |
|---|---|---|---|
| Total revenue | $7.365 billion | $7.100 billion | Up 3.7%; hospitality and investment-related revenue grew, while commercial property revenue declined. |
| Net income | $996 million | $3.499 billion | Down $2.503 billion, largely reflecting a sharp reduction in fair-value gains. |
| Net income attributable to Unitholders | Loss of $132 million | Income of $1.276 billion | Different from consolidated net income, which includes non-controlling interests. |
| NOI | $3.654 billion | $3.703 billion | Down 1.3%. Commercial-property NOI was $3.026 billion; hospitality NOI was $628 million. |
| Commercial-property margin | 62.4% | 63.9% | Down 1.5 percentage points, as reported by management. |
| FFO / Company FFO | $586 million / $584 million | $578 million / $725 million | FFO rose slightly; Company FFO fell. Both are non-IFRS measures. |
| Cash flow from operating activities | Outflow of $53 million | Inflow of $606 million | Working capital and other items contributed to the 2022 outflow. |
| Cash and cash equivalents | $4.020 billion | $2.576 billion | At year-end. |
| Debt obligations | $58.562 billion | $55.327 billion | Increased, mainly reflecting the Manager Reorganization. The 2021 figure includes debt associated with assets held for sale. |
| Total assets / total equity | $112.516 billion / $41.737 billion | $112.004 billion / $45.005 billion | Equity declined $3.268 billion, primarily due to distributions and foreign-currency translation. |
Material changes versus 2021
- Fair-value gains, net, fell to $20 million from $2.521 billion. Core Office recorded $825 million of fair-value losses, while Core Retail recorded $302 million of losses. LP Investments recorded $930 million of gains, below its $2.855 billion of gains in 2021.
- Interest expense increased $90 million to $2.683 billion, reflecting higher rates on variable-rate debt and financing activity.
- Hospitality revenue rose to $1.511 billion from $1.073 billion as the sector continued to recover; hospitality expenses also increased.
- Core Retail FFO improved to $626 million from $450 million, supported by recovery in the retail business. Core Office FFO fell to $325 million from $539 million.
- Fourth-quarter 2022 revenue was $1.812 billion and net loss was $1.220 billion, compared with fourth-quarter 2021 revenue of $2.169 billion and net income of $1.682 billion.
- Year-end equity attributable to Unitholders, a non-IFRS measure, fell to $22.954 billion from $24.600 billion.
Liquidity, debt and capital allocation
- Approximately 62% of outstanding debt was floating-rate at year-end, versus 48% a year earlier. Management estimates that a 100-basis-point increase would add about $367 million to annual interest expense on floating-rate corporate and commercial debt, plus about $35 million upon refinancing fixed-rate debt due within one year.
- Consolidated debt to capitalization was 57%, compared with 52% at year-end 2021. Management expects asset sales and business cash flows to help reduce leverage and says it generally expects to extend, repay or refinance debt maturing in 2023–2024.
- Secured debt maturities include $13.373 billion in 2023 and $10.900 billion in 2024. About 2% of debt obligations were non-recourse mortgages for which contractual payments had been suspended; creditor modification or restructuring discussions were ongoing. Unsuccessful negotiations could result in properties being transferred to lenders.
- 2022 distributions to Unitholders were $1.169 billion, compared with the $53 million operating cash outflow. The filing says the gap was funded in part by LP Investments asset sales, which generated approximately $1.7 billion of net cash inflows. Distributions are not guaranteed and depend on available cash, legal restrictions and the general partner’s decisions.
Outlook, risks and unusual items
- Management sees potential to increase office occupancy and cash flows, reposition retail properties and advance development projects. It cautions that growth in occupancy, rents and cash flows is not assured; no specific earnings or financial guidance is provided.
- Management states that current office and redevelopment projects were approximately 75% pre-leased on a weighted-average basis and generally tracking on time and budget. It also expects to use asset sales and refinancing to address liquidity and debt needs.
- On December 9, 2022, Brookfield completed the distribution of 25% of its asset-management business. In the related reorganization, BPY redeemed $1 billion of preferred units issued by a subsidiary and acquired fund and other investment interests for net consideration of $2.475 billion, funded through CanHoldco Class D junior preferred shares issued to Brookfield Corporation. The transfers were accounted for under common control at carrying value.
- BPY sold multiple assets and portfolios during 2022, including a U.K. student-housing portfolio for approximately £3.4 billion ($4.0 billion). It also conveyed a U.S. mall to its lender in satisfaction of $361 million of debt.
- Key risks include rising interest rates and refinancing costs, office demand and work-from-home trends, inflation and operating-cost pressure, tenant defaults and lease expiries, asset valuation uncertainty, foreign-exchange movements, and the liquidity and execution risks of asset sales and development. Brookfield’s control, related-party arrangements, fees and potential conflicts of interest are also significant considerations for preferred unitholders.
- Investment-property valuations rely on management estimates of rents, discount rates and capitalization rates. Deloitte identified fair value of investment property as a critical audit matter. Management reported that 95 external appraisals covering $35 billion of gross property value were within 1% of its valuations.
- The filing reports no material governmental, legal or arbitration proceeding known to BPY and no defaults, dividend arrearages or delinquencies. It notes ordinary-course claims and contingent indemnities and guarantees for which maximum exposure cannot be reasonably estimated.
Most important facts for investors to verify
- How much of the reported consolidated income and property cash flow is attributable to BPY’s economic interests, given consolidation of assets with substantial non-controlling interests?
- Whether operating cash generation, asset-sale proceeds and committed credit capacity can support distributions, development spending and upcoming debt maturities without further material asset sales.
- The status and outcome of the suspended-payment mortgage negotiations, and the debt maturities and refinancing terms for 2023–2024.
- Whether property valuations remain supportable under higher discount and capitalization rates, particularly for office assets and other properties with material valuation sensitivity.
- The terms and economic effect of Brookfield-related fees, transactions and control arrangements, and the implications of BPY LP Units being wholly owned by Brookfield and no longer publicly traded.