Brookfield Property Partners L.P. — FY2019 Form 20-F
Reporting period: Fiscal year ended December 31, 2019; filed February 28, 2020. This is an annual report, not a standalone Q4 filing, though quarterly results are included. Financial statements are in U.S. dollars and prepared under IFRS. Brookfield Property Partners (BPY) owns and operates a global, diversified real estate business across Core Office, Core Retail and LP Investments.
Key financial results
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Total revenue | $8.203bn | $7.239bn | +13% |
| Net income | $3.157bn | $3.654bn | -14% |
| Net income attributable to Unitholders | $1.956bn | $1.978bn | -1% |
| Net income per LP Unit | $1.89 | $2.28 | Lower |
| FFO | $1.147bn | $866m | +32% |
| Company FFO | $1.345bn | $1.179bn | +14% |
| Cash flow from operating activities | $624m | $1.357bn | -54% |
| Distributions to unitholders | $1.266bn | $1.059bn | +20% |
2019 commercial property NOI was $3.724bn, with a 65.4% margin; hospitality NOI was $690m, with a 36.1% margin. Total NOI was $4.414bn, approximately 53.8% of revenue. FFO and Company FFO are non-IFRS measures and are not measures of operating cash flow.
At December 31, 2019, total assets were $111.643bn, debt obligations $55.390bn, cash and cash equivalents $1.438bn, and total equity $44.935bn. Equity attributable to Unitholders was $28.530bn, or $29.72 per unit on the company’s stated assumed-conversion basis. Reported leverage was 54% debt to capitalization in the MD&A; a separate secured-debt table reports 55% using its stated measure. Group-wide liquidity was $6.881bn, including liquidity at investments whose distributions BPY does not control.
Q4 2019 snapshot
Fourth-quarter revenue was $2.087bn, net income was $1.551bn, net income attributable to Unitholders was $1.022bn, and attributable net income per LP Unit was $1.00. The filing does not provide a clear Q4 FFO value in the quarterly-results table.
Material changes and drivers
- Revenue and FFO benefited mainly from a full year of consolidated GGP/BPR results, versus only four months of GGP consolidated results in 2018, and from Core Office same-property growth.
- Net income fell despite higher FFO, principally because net fair-value gains declined to $596m from $2.466bn. Core Retail recorded $686m of fair-value losses, attributed to revised cash-flow assumptions and valuation metrics; 2018 included a $412m Core Retail gain, including the GGP bargain-purchase gain.
- Interest expense rose $460m to $2.924bn, primarily reflecting debt assumed or incurred for GGP and other acquisitions and financing activity. General and administrative expense fell to $882m from $1.032bn, largely due to lower transaction costs and BSREP III deconsolidation.
- Total assets declined $10.877bn and debt obligations fell $8.421bn, mainly following loss of control and deconsolidation of BSREP III after BPY reduced its commitment from 25% to $1bn, or 7% of the fund. Cash also declined from $3.288bn to $1.438bn.
- Core Office same-property NOI grew 7%; the portfolio was 92.9% leased overall. Core Retail occupancy was 96.4%, compared with 96.5% a year earlier; new and renewal leases were 3.6% above expiring rents on a suite-to-suite basis.
Outlook, risks and other important matters
- Management targets 5%–8% annual distribution growth and expects an annualized LP Unit distribution of $1.33; the 2019 distribution was $1.32 per unit. The current quarterly distribution was declared at $0.3325 per unit. BPY says distributions are not assured and that proposed distributions exceed cash received from operating entities and projected operating cash flow from direct investments.
- Management’s stated targets include 10%–12% total returns for Core portfolios, a 20% gross total return and 2.0x capital multiple for LP Investments, and leveraged after-tax returns of 12%–15% overall. These are targets, not guarantees. Development and redevelopment are intended to support future growth; active office projects totaled approximately 12 million square feet, with 6 million square feet in planning.
- Liquidity and refinancing are key considerations: $8.825bn of debt was classified as current at year-end. Approximately 45% of outstanding debt was floating-rate; management estimated that a 100-basis-point increase would add about $250m in annual interest on corporate and commercial floating-rate debt, plus about $7m upon refinancing fixed-rate debt due within one year. Management said it intended to reduce debt to capital to 50%.
- Key risks include property-market and tenant weakness, retail disruption from e-commerce and bankruptcies, office-demand changes, interest-rate and refinancing exposure, foreign-exchange movements, valuation uncertainty, development execution, and illiquid assets. The filing also identifies potential conflicts arising from Brookfield’s control, management fees, related-party dealings and allocation of investment opportunities.
- The report noted uncertainty about the emerging coronavirus outbreak’s potential effect on global trade, travel and the economy; its impact was not predictable at filing. The filing reports no material off-balance-sheet arrangements and no material governmental, legal or arbitration proceedings known to BPY. Development commitments and fund capital commitments remain relevant liquidity uses.
- Subsequent events: BPY issued C$500m of medium-term notes in January 2020 and $287.5m of Series 3 preferred units in February 2020. Deloitte issued unqualified opinions on the IFRS financial statements and internal control over financial reporting; management also concluded controls were effective.
Important facts for investors to verify
- Whether operating cash generation can support distributions: 2019 distributions of $1.266bn exceeded operating cash flow of $624m; identify the role of asset sales, refinancing or borrowing in funding the difference.
- The maturity schedule, refinancing plans and covenant headroom for the $55.390bn debt balance, including the $8.825bn current portion and floating-rate exposure.
- Assumptions behind property fair values, especially Core Retail cash flows and capitalization rates; management’s 203 external appraisals covering $55bn of gross property value were within 1% of its valuations.
- The performance and cash realization timing of LP Investments and the remaining capital commitments, including the effect of the BSREP III deconsolidation.
- The sustainability of the $1.33 annualized distribution target and 5%–8% growth goal, given distributions exceeded operating cash flow in 2019.
- Brookfield-related fees, incentive arrangements, investment allocation practices and governance safeguards, alongside any dilution from unit or preferred-security issuance.