Brookfield Property Partners L.P. — FY2021 Form 20-F
Business context and reporting period. Annual report for the year ended December 31, 2021, filed February 25, 2022. Financial statements are prepared under IFRS in U.S. dollars. BPY owns and operates global commercial real estate through Core Office, Core Retail and LP Investments. Reported property statistics generally reflect 100% of properties, while BPY’s economic interests vary. Brookfield Asset Management privatized BPY on July 26, 2021, acquiring all publicly held LP Units; those units were delisted, and BPY became wholly owned by Brookfield. Preferred units remain publicly traded.
Key financial metrics
| Metric | FY2021 | FY2020 | Change / context |
|---|---|---|---|
| Total revenue | $7.100 billion | $6.593 billion | Up 7.7% |
| Net income (loss) | $3.499 billion | $(2.058) billion | Turnaround, driven substantially by fair-value movements |
| Net income (loss) attributable to Unitholders | $1.276 billion | $(2.358) billion | Reflects substantial non-controlling interests |
| Funds from operations (FFO) | $578 million | $707 million | Down 18.3%; non-IFRS measure |
| Company FFO (CFFO) | $725 million | $815 million | Down 11.0%; non-IFRS measure |
| Total NOI | $3.703 billion | $3.535 billion | Up 4.8%; non-IFRS measure |
| Commercial property margin | 63.4% | 64.6% | Down 1.2 percentage points |
| Cash flow from operating activities | $606 million | $1.332 billion | Down $726 million |
| Cash and cash equivalents | $2.576 billion | $2.473 billion | At year-end |
| Total assets / total equity | $112.004 billion / $45.005 billion | $107.951 billion / $41.523 billion | Assets increased $4.053 billion |
| Debt obligations | $55.327 billion | $54.717 billion | Includes $3.006 billion classified with assets held for sale |
Debt and liquidity. Management reported consolidated debt-to-capitalization of 52%, down from 55% in 2020; approximately 48% of debt was floating rate. A 100-basis-point rate increase was estimated to raise annual interest expense by about $255 million on floating-rate debt and $31 million on fixed-rate debt due within one year. Secured debt-to-investment-property ratio was 59%. Approximately 2% of debt obligations related to non-recourse retail mortgages for which contractual payments had been suspended while restructuring discussions continued.
Quarterly context. Q4 2021 revenue was $2.169 billion and net income was $1.682 billion; net income attributable to Unitholders was $620 million. For the full year, commercial property revenue decreased while hospitality and investment/other revenue increased.
Material changes versus the prior comparable period
- Net income swung from a 2020 loss to profit in 2021. The main driver was the comparison against substantial 2020 fair-value losses, plus 2021 valuation gains, particularly in LP Investments, and recovering hospitality activity.
- Net fair-value gains were $2.521 billion in 2021 versus losses of $1.322 billion in 2020. Core Retail still recorded $810 million of fair-value losses in 2021; LP Investments recorded $2.855 billion of gains.
- FFO and CFFO declined despite higher reported net income. Core Office FFO rose to $539 million from $495 million; Core Retail fell to $450 million from $521 million; LP Investments rose to $179 million from $64 million; Corporate FFO loss widened to $590 million from $373 million.
- Core Retail NOI declined to $936 million from $981 million, while Core Office NOI increased to $1.089 billion from $1.075 billion. Office same-property occupancy remained under pressure: consolidated portfolio occupancy was 86.5%, versus 88.5% in 2020.
- Cash flow from operations fell to $606 million. Distributions to Unitholders were $878 million, exceeding operating cash flow; management said the 2021 gap was funded in part by approximately $540 million of realized gains from asset dispositions.
- Debt obligations decreased from the prior year-end in management’s summary presentation, while the audited balance-sheet total, which includes debt associated with held-for-sale assets, was $55.327 billion. Assets held for sale rose sharply to $10.510 billion from $588 million.
Outlook, management commentary, risks and unusual items
- Management expects opportunities to improve office occupancy, rents and cash flows, but cautions that growth is not assured. It expects meaningful lease rollover in 2022, which may restrain near-term FFO growth.
- Management said most near-term maturities were expected to be extended, repaid or refinanced, and that it believed liquidity sources included cash, committed facilities, operating cash flows, asset sales and capital markets. These expectations are subject to market conditions and successful refinancing.
- COVID-19 continued to affect retail, hospitality, leasing, tenant credit and development. Hospitality revenue recovered to $1.073 billion from $702 million as restrictions eased and leisure demand improved, but disruptions and new outbreaks remained risks.
- Key exposures include tenant defaults and bankruptcies, work-from-home trends and office demand, e-commerce and retail weakness, interest and foreign-exchange rates, refinancing and covenant risk, climate and environmental liabilities, cyber disruption, and the illiquidity of property investments.
- Brookfield’s 100% ownership and management role create material conflicts of interest. The filing describes limited fiduciary protections, Brookfield’s discretion over opportunity allocation and asset sales, and a management fee of 1.05% of specified equity and carrying-value amounts.
- Development and fund commitments at year-end included approximately $1.144 billion in total commitments disclosed in the liquidity schedule; the filing separately identifies remaining commitments to several Brookfield-sponsored funds. Material project commitments included $815 million for U.S. developments and A$259 million for Australian developments.
- Management’s property valuations involve significant estimation uncertainty. One hundred external appraisals covering $40 billion of gross property value were within 1% of management valuations; nevertheless, a 25-basis-point increase in discount and terminal capitalization rates or implied capitalization rates was estimated to reduce property values by $3.427 billion.
- Unusual items: a fourth-quarter accounting-policy change moved depreciation and amortization into direct property and hospitality expenses, with no effect on revenue or net income. Hospitality Investors Trust was consolidated after BPY obtained control on June 30, 2021. Deloitte issued unqualified opinions on the financial statements and internal controls; management excluded Hospitality Investors Trust from its internal-control assessment.
- After year-end, BPY sold a triple-net-lease portfolio for $3.8 billion on February 14, 2022 and an extended-stay hospitality portfolio for $1.5 billion on February 23, 2022. The board declared quarterly preferred-unit distributions in February 2022; distributions remain subject to applicable terms, available funds and declaration.
Most important facts for investors to verify
- Reconcile reported net income to FFO, CFFO and operating cash flow; assess how much 2021 earnings depended on fair-value gains and non-recurring realization activity.
- Review the privatization’s effects on ownership, non-controlling interests, fees, governance and the rights and payment priority of each preferred-unit series.
- Confirm debt totals and maturities across the audited statements and held-for-sale classifications, and monitor the suspended retail mortgage payments, refinancing and covenant discussions.
- Track completion of the announced $5.3 billion of post-year-end asset sales, the use of proceeds, and the remaining $10.510 billion of assets held for sale at year-end.
- Test valuation assumptions, leasing and occupancy trends, retail tenant health, 2022 lease expirations, and the sensitivity of property values to rates and cash-flow estimates.
- Assess distribution coverage and the dependence on asset sales or financing when distributions exceed operating cash flow; review non-IFRS definitions and reconciliations when comparing performance.