S&P eyes slashing Brookfield Property Partners’ credit rating

Company faces “heightened refinancing risk,” junk status

Brookfield Properties Partners' Brian Kingston and Bruce Flatt (Illustration by The Real Deal with Getty, Brookfield Asset Management)
Brookfield Properties Partners' Brian Kingston and Bruce Flatt (Illustration by The Real Deal with Getty, Brookfield Asset Management)

Brookfield Property Partners’ debt may be reduced to junk by S&P Global Ratings, with the firm likely to have trouble refinancing a substantial amount of maturing debt over the next two years.

S&P is considering lowering its credit rating on debt issued by the Canadian conglomerate’s primary real estate arm to below its current status of BBB-, according to a report on Thursday. Bloomberg first reported the news.

Brookfield, which took Brookfield Property Partners private in 2021, owned about $130 billion in real estate as of June 30. Brookfield Property Partners was Brookfield’s primary real estate arm before privatization.

Over the past year, as interest rates have soared and office properties struggled, Brookfield has defaulted on more than $1 billion borrowed against office towers in Downtown Los Angeles and has stopped making payments on $886 million in loans tied to 10 retail properties.

“This designation relates to a specific entity and has no impact on either the pricing or ability of Brookfield to access the real estate capital markets,” a Brookfield spokesperson said in a statement.

The parent company’s CEO, Bruce Flatt, has emphasized to the media that its defaults are “small and not relevant to the overall business.” The firm recently launched a $15 billion real estate fund.

Brookfield has a “sizable liquidity position” and often sells properties, which mitigates some risk, S&P said in its report.

“However, BPY has one of the weakest financial risk profiles within our North America real estate coverage given elevated leverage and thin interest coverage,” it added.

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Any S&P rating below BBB- is considered junk, meaning below investment grade. A downgrade to BB would mean Brookfield Property Partners “faces major ongoing uncertainties to adverse business, financial and economic conditions.”

Most of S&P’s concern stems from Brookfield’s significant exposure to floating-rate debt. At the end of June, almost half of its debt with interest rate hedges, such as rate caps, was floating-rate, meaning the loans are susceptible to huge jumps in rates.

At that point, Brookfield Property Partners had stopped paying about “3 percent of its contractual payments on non-recourse mortgage debt,” according to S&P. S&P expects lenders to extend loan maturities in “many” cases, but the agency is also expecting Brookfield to hand back more assets to lenders.

S&P sees the defaults as a “portfolio management exercise.” It said Brookfield Property Partners still “maintains a solid position” with its lenders because of its parent company’s size and banks’ reluctance to take back properties.

But if more defaults come up, the agency said those could “erode” its view of the firm’s overall assets.

S&P also expressed concern that Brookfield Property Partners would distribute profits from any property sales up to its parent company, rather than pay debt with them.

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